00:05 Greetings, and welcome to NAPCO Security Technologies, Inc. Fiscal First Quarter twenty twenty two Earnings Release Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. 00:30 It is now my pleasure to introduce your host, Patrick McKillop, Director of Investor Relations. Thank you. You may begin.

00:39 Good morning, my name is Patrick McKillop, I'm the Director of Investor Relations for NAPCO Security. Thank you all for joining us for today's conference call to discuss our financial results for our fiscal first quarter twenty twenty two. By now, all of you should have had the opportunity to review the press release discussing the results. If you have not, a copy of the release is available on -- in the Investor Relations section of our website www.napcosecurity.com. 01:11 On the call today is Richard Soloway, President and CEO of NAPCO Security Technologies; and Kevin Buchel, Senior Vice President and CFO. 01:20 Before we begin, let me take a moment to read the forward-looking statements. 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 and 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 SaaS recurring monthly revenue. 02:06 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. 02:24 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 is as of today's date, unless otherwise stated, and we undertake no duty to update such information, except as required under applicable law. 03:06 I will turn the call over to Dick in a moment, but before I do, I just wanted to mention a few things on the IR front. We're planning more virtual NDRs into the end of calendar twenty twenty one, and we will be presenting at the Needham Growth Conference in January twenty twenty two. Investor outreach is crucial, especially for a small cap companies such as NAPCO, and I would like to thank all of those folks that assist us in these conferences and marketing trips. 03:33 With that out of the way, let me turn the call over to Richard Soloway, President and CEO of NAPCO Security Technologies. Dick, the floor is yours.

03:43 Thank you, Patrick. Good morning, everyone. Welcome to our conference call. Thank you for joining us today to discuss our results. We are very excited to report our fiscal Q1 twenty twenty two record sales of thirty one point one million dollars and record net income of seven point eight million dollars. 04:08 Our results reflect another strong performance by NAPCO. Recurring revenue continue to grow at a very strong rate and the annual run rate is now forty two point six million dollars based on October twenty twenty one recurring revenues. Our balance sheet remains strong with our cash balances growing -- continuing to grow now in excess of forty three million dollars. 04:38 We continue to focus on capitalizing on key industry trends which include wireless fire and intrusion alarms, school security solutions, plus enterprise access control systems and architectural locking products. The management team here at NAPCO continues to focus on the key metrics of growth profits and returns on equity and controlling costs. These metrics are important for us, as well as our shareholders. We continue to execute our business strategy and our interests are aligned with our shareholders as senior management at NAPCO owns approximately twenty one percent of the equity. 5:27 Before I go into greater detail, I will now turn the call over to our CFO, Kevin Buchel, who will provide an overview of our fiscal first quarter results and then I'll be back with more on our strategies and outlook. Kevin, the floor is yours.

05:45 Thank you, Dick and good morning everybody. For the first quarter, net sales increased thirty four percent to a first quarter record thirty one point one million dollars, as compared to twenty three point two million dollars for the same period last year. The increase in sales for the quarter was primarily related to increases in recurring service revenue, intrusion and access products and Alarm Lock and Marks brand door locking products. 06:18 Recurring monthly revenue continued strong growth, increasing forty one percent for the quarter. This strong growth is primarily attributable to the continued strength of our commercial intrusion and fire alarm business, which has not been significantly affected the COVID pandemic as buildings must remain secure. Recurring revenue now has an annual run rate of forty two point six million dollars based on October twenty twenty one recurring revenue. 06:49 Also our equipment sales continued to rebound, up thirty one percent from the same period last year. Gross profit for the three months ended September thirty twenty twenty one increased twenty six percent to thirteen point four million dollars with the gross margin of forty three percent as compared to ten point seven million dollars with the gross margin of forty six percent for the same period a year ago. 07:19 Gross margins for recurring revenue in the first quarter continue to be strong, coming in at eighty six percent compared to eighty four percent for the same period a year ago. While the overall gross profit increased by two point eight million dollars or twenty six percent, gross margin for equipment revenues was twenty two percent as compared to twenty nine percent last year. This decrease was primarily due to increased freight and component part costs relating to the current worldwide supply chain problems, as well as a shift in product mix to more of the company's Starlink radio products, which generate a lower gross margin than the company's locking or access products, but leads to the more profitable recurring service revenues. 08:10 The increase in gross profit for the three months was primarily due to the aforementioned increased recurring revenue, increased sales of intrusion and access products, as well as increased sales of door locking products. Research and development expenses for the three months ended September thirty twenty twenty on were relatively constant at one point nine million dollars or six percent of sales as compared to one point nine million dollars or eight percent of sales for the same period a year ago. 08:44 Selling, general and administrative expenses for the three months ended September thirty twenty twenty one increased nineteen percent to seven point three million dollars or twenty four percent of sales as compared to six point one million dollars or twenty seven percent of sales for the same period a year ago. The increase in selling, general and administrative expenses was primarily due to trade show and advertising expenses, which were curtailed during the COVID-nineteen pandemic last year. As well as increased sales commissions related to the thirty four percent increase in sales. 09:22 The decrease in SG&A expenses as a percentage of sales from twenty seven percent to twenty four percent was primarily due to the aforementioned increased sales. As speaking of trade shows, we will be attending the upcoming International Security Conference at the Javit Center in New York City on November seventeen and eighteen and if anyone is interested in attending, please reach out to Patrick. 09:51 Operating income for the quarter increased fifty six percent to four point two million dollars as compared to two point seven million dollars for the same period last year. Other income for the quarter increased by three point nine million dollars and was related to the gain on the extinguishment of debt with such extinguishment occurring during the three months ended September thirty twenty twenty one. 10:17 The company's provision for income taxes for the three months ended September thirty twenty twenty one increased by nineteen thousand dollars to three hundred and forty eight thousand as compared to three hundred and twenty nine thousand for the same period a year ago. The company's effective rate for income tax was four percent and twelve percent for the three months ended September thirty twenty twenty one and twenty twenty, respectively. The decrease in the company's effective rate for the three months ended September thirty twenty twenty one was due primarily to the income recognized as a result of the aforementioned extinguishment of debt being non-taxable. 10:57 Net income for the quarter increased two thirty four percent to a quarterly record of seven point eight million dollars as compared to two point three million dollars for the same period last year. Earnings per share diluted for the quarter increased two twenty three percent to zero point four two dollars as compared to zero point one three dollars for the same period a year ago. 11:21 Adjusted EBITDA for the quarter increased one hundred and seventy percent to eight point six million dollars, as compared to three point two million dollars for the same period a year ago. Adjusted EBITDA per share diluted for the quarter increased one hundred and seventy six percent to zero point four seven dollars as compared to zero point one seven dollars for the same period a year ago. 11:47 Net income, earnings per share, adjusted EBITDA and adjusted EBITDA per share for the quarter ended September thirty twenty twenty one, all reflected other income of three point nine million dollars, which resulted from the previously mentioned extinguishment of debt. Without such benefit, net income, earnings per share, adjusted EBITDA and adjusted EBITDA per share would have been three point eight million dollars, zero point two one dollars zero point two six dollars, respectively. All record results for any first fiscal quarter in the company's history. 12:29 Moving on to the balance sheet. At September thirty twenty twenty one the company had forty three point two million dollars in cash and cash equivalents and marketable securities, as compared to forty point two million dollars at June thirty, twenty twenty. Working capital defined as current assets less current liabilities was eighty one point eight million dollars at September thirty, twenty twenty one as compared with working capital of seventy five point eight million dollars at June thirty, twenty twenty one. 13:01 Current ratio defined as current assets divided by current liabilities was six point two to one at September thirty twenty twenty one and was four point eight to one at June thirty, twenty twenty one. Cash provided by operating activities for the quarter decreased by eight percent to three point five million dollars as compared to three point eight million dollars last year. The decrease was primarily due to inventory increasing by one point eight million dollars at September thirty, twenty twenty one compared to June thirty, twenty twenty one levels. And decreasing by seven hundred thousand dollars at September thirty twenty twenty compared to June thirty twenty twenty levels. This increase is primarily the result of the company significantly increasing purchases of certain components that it becomes difficult to source during the worldwide supply chain problems. 13:57 CapEx was five twenty two thousand dollars during the quarter versus one forty three thousand dollars in the year ago period. 14:06 That concludes my formal remarks. And I would now like to return the call back to Dick.

14:12 Thank you, Kevin. Our fiscal Q1 twenty twenty two was a record breaker, and I am proud of the NAPCO team for executing through the challenges that have been brought by the COVID pandemic. The quarter also marked our fourth consecutive quarter of year-over-year sales growth and our goal is to surpass the previous streak of twenty three quarters that was disrupted in twenty twenty by COVID-nineteen. 14:45 The primary driver of our success comes from the commercial fire and intrusion alarm business. Commercial buildings must have and maintain a fire alarm system in order to receive a certificate of occupancy and this is a mandatory non-discretionary item. We continue to focus on this segment of the business giving its -- given its high profitability and essential nature. The recurring revenue annual run rate is now at forty two point six million dollars as of October twenty twenty one. And as a reminder, last quarter we surpassed the goal of forty million dollars in annualized recurring revenue that we had set several years ago. 15:37 The constraints of the supply chain have impacted us as well as our competitors, but NAPCO's delivery performance has been far better. We are aggressively managing these issues by developing alternative supply sources and delivery methods, while also reengineering products where necessary. We continue to remain focused on aggressively managing these logistical challenges to ensure that we remain well positioned to meet the needs of our clients. 16:13 The conversion of older legacy copper phone line technology is still in the early part of the replacement cycle with millions of buildings still requiring upgrades, which create opportunities for our StarLink line of universal fire intrusion and IoT communicators. Our StarLink communicators offer the widest coverage in the US to dealers with both AT&T and Verizon LTE service. Additionally, integrators and dealers will need to complete upgrades for their customers as AT&T and Verizon have both announced the sunset of their older 3G cell network in calendar year twenty twenty two. 17:08 Our fully integrated solutions for the school security market remains a top priority, given the healthy margins from those products that are generated. We believe this market remains a significant opportunity. The number of incidences of gunfire in school grounds have nearly doubled the previous high in twenty nineteen as students return in school learning from remote learning last year. School administrators, we believe, we'll start to turn their attention back to the need for school solutions and security solutions as more incidents happen and they are not spending all day dealing with the COVID protocols and policies. 17:58 Recently, we announced a school security project in Tatum, Texas, Independent School District and we are optimistic about more projects being announced during our fiscal twenty twenty two-year. The availability of grants for schools to fund these security projects has never been better. Options for funding are available from the US Federal government and state governments, which in total are in the billions of dollars. We remain focused on providing schools with products and solutions they need to protect their students and faculty. 18:39 Air Access, our latest product innovation was launched during our fiscal twenty twenty one. And as you may recall, this product will bring recurring revenue to the locking and access control divisions of the company, which have not had recurring revenue products until now. 18:59 Air Access is the industry's first cellular based access control system which we believe is a billion dollar market opportunity. The benefits of Air Access include no need for upfront investment in expense hardware, no need to interfere with corporate IT networks which can be a major problem for installers and no on-site database backups or software updates. 19:29 While we are in the early stages of the launch, we've received positive feedback from dealers. The launch of Air Access means that NAPCO now generates recurring revenue from each division of the company, EG alarms and connectivity, locking and access control. 19:51 Lastly, as Kevin previously mentioned, the ISCE trade show is November seventeenth and eighteen in New York City at the Javit Center. We will be showcasing Air Access as well as many of our other new products and strategically important products. We invite you to come by and see our booth displaying all of our products. 20:17 We will begin a Q&A session portion of this call in a moment. Our first fiscal quarter twenty twenty two was a very successful one. And we have now started a new sales growth streak with fiscal Q1 twenty twenty two being the fourth consecutive quarter of sales growth. We remain excited about the fiscal twenty twenty two and beyond year. 20:47 NAPCO’s senior management maintains a high level of ownership in our equity, approximately forty one percent and I would like to thank everyone for their support and for joining us in the exciting future we have. 21:02 Our formal remarks are now concluded, we would now like to open the call for the Q&A session. Operator, please proceed.

21:12 Thank you. Ladies and gentlemen at this time we will be conducting a question-and-answer session. Our first question comes from the line of Mike Walkley with Canaccord Genuity. Please proceed with your question.

21:43 Great. Thanks for taking my questions. Congratulations on the results. It seems Napco is navigating the supply chain better than a lot of your competitors. Can you maybe walk through what you're seeing in terms of competitiveness and getting components and how maybe you building at the Dominican Republic is helping you outperform the industry in terms of supplying your distribution channel?

22:10 Thanks, Mike. We've been through part shortages over the years. In the eighteen and the nineties and now with this, and this is very severe, but we have certain techniques that we've developed over the years to overcome a lot of the issues. And that's why we are delivering Starlink radios and control panels and other equipment, whereas our competitors are not able to deliver. That doesn't mean it's one hundred percent perfect, but it's much better than the industry. 22:51 And we also have a backlog. I mean, if we could shift the backlog, the numbers would even be better. But we expect that we're going to be catching up with more of the backlog in the current quarter. The products are doing really well with the dealers and the installation. So, orders are piling in, but we're very busy and our factory is able to handle it. And as we said, we can do one hundred million dollars per shift, we can run three shifts. In the Dominican Republic, there's a lot of labor and it's priced right, and people want to work on assembling electronic circuit boards and making housing and all these type of things we do. So, it's a great place, plus we also get our deliveries in Dominican in six days compared to our competitors that take six weeks if they could even get a boat into the USA. So there's a lot of advantages to the way we're set up and we're happy about the way things are going.

24:01 Great. Thanks. That's helpful. And my follow-up question, just on the visibility into the school security systems, you mentioned a contract win clearly as these ramp that should help the mix in gross margins, can you maybe talk about the pipeline there now that everybody is back in school and how that business might come back? And then maybe as a follow-up for Kevin, how that could impact product gross margins longer term?

24:29 Yeah. So Mike, we're seeing more activity because now the schools are back, the kids are back, the incidents, unfortunately are back. We saw -- there was a shooting in Texas in a high school few weeks ago, and so is barricaded against the doors just like five years ago. So, in many places nothing has changed and we know that the need is as great as it was back then. And now I think focus will change, we've seen it start to change for us and we'll announce the wins that we get where we're allowed to and the one in Texas, recently they allowed us to announce it. We'll see more of it. We believe this is something that's not going away, it does help the margins. The margins on school security products is either through locking or access or both, that are very high margin products typically. And that's where you'll see a shift back in the margin mix. 25:41 Right now you're seeing the radios dominating, which we love, we love the radios. It’s not a high gross margin product, but boy, this lead profitability with recurring revenue. But we want both, we want both the recurring, but we also want the higher margin hardware. And we think we'll get it as this fiscal year continues. And it's not only this year and beyond, it's a big area for us and we think we'll start to get recurring revenue from the schools, which we never get as part of the whole Air Access solutions.

26:22 Great. That makes a lot last question sense. And last question from me and I'll pass it on. I know December quarter can be a little tricky with year-end inventory management from your distribution partners. Can you help us just think about levels of inventory through distribution partners? And then also with supply constraints, your ability maybe to meet demand in the December quarter, should we think kind of a similar mix also that relates to hardware gross margin for December quarter? Thank you.

26:50 So Mike, the December quarter historically is always challenging logistically before we had any COVID issues because of the holidays, a lot of times shipping slows down at last week of December, but what we're seeing with the distributors is tremendous sell through. That hasn't changed. The sell through stats is good or better than ever. 27:18 And what we're starting to see is, they are buying more, I don't think it being as tight on their supply on their shelves. We always like when it's three month supply. And during COVID they kind of slowed down and maybe it was more like a month to month and a half, they were trying to become just in time distributors. But I think they realize that you want to be online for product, you don't want to be left short. So they're placing their orders seems to me at a more aggressive level than they happen, maybe not quite returning to a three month supply, but better than the one month, one point five month supply. We believe we can meet the demand, we work hard at making sure our customers get their products. 28:09 Our Q2 is typically like a Q1 in terms of volume. We're hoping we will be even better and we do have a head start, because we had a decent sized backlog heading into Q2. So that could help. But Q2 brings the same kind of levels that Q1 does. But recurring keeps growing and that helps the sales grow and we want to keep our four gains streak alive and hit the fifth quarter in a row of sales over sales growth.

28:45 Great. That's helpful. Thanks for taking my questions.

28:48 Take care, Mike.

28:50 Our next question comes from the line of Jim Maturity with Needham & Company. Please proceed with your question.

28:59 Hi thanks. Good morning. Kevin, I'm wondering if there's a way for you to help us with sequential decline in gross margins. In terms of getting a better sense on how much of it was mix, how much of it was just the supply chain issues that we’re hearing about from everyone?

29:23 Yes. So, we haven't broken that out. The mix is a key part of this. If you saw the margin, the gross margin on hardware dropped even last quarter as a result of the mix. And that was close to a twenty seven million dollars hardware quarter and yet the margins suffered a bit because the radios were the predominant hardware item, at least it was in that quarter and in this quarter as well. 29:54 If I'm going to say how much of each, I would say the mix represents more than fifty percent of the reason for the decline in hardware margin. But that's not to say that the other parts are not important also. And of the freight and materials, freight is the biggest -- bigger issue for us. You guys probably read a lot about the supply chain mess with freight, we're lucky that we have the ability to fly product, because the Dominican Republic is not that far away. We could fly finished goods if we have to. 30:35 And if we have to fly from Asia, we only have to supply, -- we only have to fly components. So that's a lot easier than if we're flying a complete finished goods item, but it's expensive to fly, but we do it, we want to make sure that A, our sales don't suffer, and B, we take advantage of the problem that our competitors are having. So it's a real issue, I'm going to say it's not the primary issue, the primary issue being the mix, but it's there, it's real and I think it's going to continue for a while. And we don't know if it's another year, another six months. But remember, we're doing pretty well, we have our engineers here on-site with us, we could reengineer ad solutions for this. These are all things we're doing that the competitors are not doing. 31:32 But it's a factor. It's real, but it will change, A, as the supply chain clears up; and B, as we get more locking sales from schools, and things like that as the world gets more back to normal. And we have that feeling that it's getting back to normal. All our sales guys are out flying around the country, trade shows are back, things are getting normal. And then for twenty twenty six, we still have our goal to hit one hundred and fifty million dollars of recurring revenue and one hundred and fifty million dollars of hardware with very strong margins on both sides, we haven't changed that goal, that goal is still with us.

32:18 But it sounds like from – in terms of standpoint of some of the supply chain challenges, think that's going to necessarily improve in the next three to six months, It sounds like this is just the environment we're in and you guys are doing as good job as you possibly can in terms of navigating that?

32:38 I would say that's a good summary of it. I think we're doing better than the competitors from what we hear. We're able to supply the dealers our products. And remember this that, a recurring revenue product is like planting a seed. You put that seed in the ground and it keeps giving fruit for years and years and years. So we want to make sure we got a lot of seeds out there that we're planting so that we keep getting lots of fruit through our forward years. And as Kevin said, the twenty twenty six year, we still feel comfortable that we can hit those goals. So working very hard at it and it's paying off.

33:28 And just last question, just on the revenues in the quarter, would you -- given some of the constrains your revenues have been higher in the quarter? And if so, how much of that possibly slip into Q2 or possibly beyond just given these kind of supply chain challenges?

33:52 Our backlog was very high at the end of the quarter. Several million, just roughly. I mean just to show you how things went, we actually flew product in from the DR, we got the JFK. We thought great, we have this, we're going to make these sales. And the JFK workers they were only two working all day to unload not only our cargo, but anyone else and the cargo didn't arrive at time. It's kind of messy out there and it's not -- there is a lot of issues like that. So we actually flew it, we got it to JFK and it never made it here. The good news is, it's here for this quarter, anything that was backlash heading into Q2 will go out by Q2. It won't linger beyond. So that's the good. We had a nice head start as we headed into Q2.

35:00 Got it. Thanks a lot.

35:05 Our next question comes from the line of Jason Smith with Lake Street. Please proceed with question.

35:12 Hey, guys. Thanks for taking my questions. Kevin I just curious, if like in the past you'd be willing to share some of the distributors sell through data that you saw in the quarter?

35:23 Yeah, I can give you a little taste. Let me just get my sheet up. It tasted really good Our number one distributor was up one hundred and seven percent on the sell three stats in September compared to the prior year. One of our distributors was up twenty seven percent, another one was up fifty four percent, thirty seven percent, thirty six percent, fifty one percent. They were all up not one was down and that bodes well for us for the future. We got to watch that stat, when that's that isn’t positive that's indicative that sales are going to drop. We've seen nothing but strength. And that's very good sign for us. 36:21 I think it's not only attributable to our products and the fact that they love our products. But I think I can't get a lot of delivery from the competitors. And so whenever there are doing with us, they're turning to us in a greater way than they were before, we can deliver, our competitors not so much. 36:42 So, we're picking up share in addition to selling to our existing base, we're picking up share and people have said you guys have the best radios in the market as controls with radios built in. Now you have Air Access, while we want to try that out because that's going to solve a lot of problems for us and it's going to allow us get recurring revenue, we don't want to deal with the IT department in companies where they don't want access control to go through their network because they're afraid of hacking. And now with Air Access, it's totally isolated from the network on the premise of the company. 37:28 So it has so many advantages, we also make upgrades to it in the cloud, don't have to do it to the hardware, there's no hardware on the site of the company. So it's all in the cloud and then there's a lot of data you can get on your smartphone from Air Access. So, it looks like it's going to be a win and it create a new marketplace. And as we said, it's a one billion dollars opportunity, Access Control is a very big business, so we'll have recurring revenue from the logs of the connectivity, fire, burglary, now locking and access, because the locking is tied into the access control, Air Access. It's an integrated locking access control cellular product and we like people to come, we look at the analysts and investors to come to the ISC show at the at the Javit Center, we will be happy to demonstrate it and you're can see the powers of Napco at that show. And this is a very important market for us. So it's going to be great to introduce it to new people and to get more share. That's our goal.

38:41 Okay. No, that's really helpful. And then just as a follow-up, just given the supply chain backdrop and some of the dynamics in the school security market. Do you think fiscal twenty two is going to follow any sort of seasonal pattern like in the past, or is that sort out the window just given all the dynamics out there?

39:01 No, I think seasonality is still part of it. Obviously recurring, which is a bigger and bigger part of our sales, it’s not affected by seasonality. 39:13 But I think our fourth quarter, which is the April, May, June quarter, I believe that still will be the strongest quarter. School security tends to be somewhat affected by seasonality. They like to put product in on the university side of things when the kids are out of school, which is really in December, January type installment -- install on the campus. And then for the summer months, usually we see sales in May and June because the kids are out of college by then. So, K-12 can really occur any time of year, the universities, that's more seasonal. 40:00 But if we were targeting what our sales are going to look like this year as a whole, we expect the sales each quarter to be greater than the prior quarter.

40:13 Okay, perfect. Thanks a lot guys.

40:18 Our next question comes from the line of Brian Ruttenbur with Imperial Capital. Please proceed with your question.

40:26 Yes, thank you very much. First question -- congratulations on the quarter. But the first question is about -- it’s really related to gross margins, but price increases. As I understand it, you've gone up about three percent on prices has gone up roughly fifteen percent, depending on their product lines has gone up twenty percent, it's all over the place. But can you talk a little bit about potential price increases, you're getting all this demand, a ton of demand and it seems like you're a little slower on the price increases than some of your competitors.

41:05 Brian, I don't know who told you three percent, but we're not doing three. We're not disclosing what it is, but it's not three. In each division is different. So the Napco division will have a certain level of pricing increases versus versus Continental. Believe me there. Price increases in each one is different and we don't really want to comment on the specifics beyond that, but we're able to do just like others are able to do it. This is the environment we're in and we're not going to sit back and do nothing.

41:43 One thing I'd like to say is that, we'd like to pick up share. We have great electro mechanical products and now all the products have recurring monthly revenue and we want to plant those seeds and pick up more share so the company gets stronger and stronger over the years going forward. And we don't want to be the highest price out there, but we want to get increases to cover our costs and that's what we're doing. But picking up share bodes for great sales in the future and we have strategy to do that.

42:23 Okay. Can you talk about -- since you won't give me the number of increase that you've had, can you talk about how many price increases you've had this year? Is it one? Is it two? Help me out a little bit on that.

42:40 I think we would call that proprietary information and we don't really want to talk about that. But we raise our prices according to the way we think which will not destroy our growth, and -- but it will also cover our costs and it's not three percent like you talking about in the beginning.

43:08 Okay. Fair enough. And then in terms of -- switching subjects to SG&A. Can you talk a little bit about the SG&A level, here you're talking about higher commissions, lots of trade shows, lots of things happening. Can you talk a little bit about this first quarter versus the second quarter, what you anticipate should at these levels, should be something higher or something lower from first quarter to second quarter for fiscal twenty twenty two?

43:39 Yes, I would use a similar level in Q2 as to Q1. Q1, Q2 last year, there was nothing going on trade show wise, travel wise working remotely. That game is over. We're out and about and so trade shows is expensive. Flying and traveling is expensive, but it's great to have the guys doing all that. So, if I'm modeling this thing out, I'm using SG&A similar lower level in Q2 as to Q1.

44:16 And then final question, just back to a little bit on gross margin on the equipment side. This is kind of the base number of twenty two percent we don't anticipate any -- the question is, do you anticipate any more drop in gross margin or can you maintain this kind of low twenty gross margin level?

44:40 Well, if I'm modeling I'm using something similar and I'm hoping to beat it. We're doing a lot of things to try to improve it and -- but being conservative, I think for at least for Q2, I would model on the same level as where we've been.

45:02 Great. Thank you very much. Congratulations on the quarter.

45:05 Thank you too.

45:09 Our next question comes from the line of Raj Sharma with B. Riley. Please proceed with your question.

45:16 Hi, good morning, again, congratulations on solid results. I had a question on your school security wins and the recent win in Tatum Texas, four schools with four hundred doors, what kind of revenues do -- would four hundred doors translate into? Would that be more of a one thousand door or something in that. And is there any Air Access sort of win. How do we look at each one of these wins sort of -- is there a – are you – now that schools reopened, are these things looking to be a quarter -- a win quarter or two wins a quarter in school districts? that will be great. Thanks.

46:06 First off, Raj, I don't know if we should announce what this was worth. But it was for a little school district it worth a lot. Several hundred thousand dollars, I give you that much. And just imagine these little school districts, how many of them there are, it really adds up real quick once the activity starts. We only announced it ones we're allowed to. If we don't announce, it doesn't mean there aren’t wins, there are other wins. We want to get to the point where we're announcing a lot of them. And they help a lot on the margin size, overall hardware side. 46:51 We expect a lot of them. How fast we're going to get them? Hard to say, but we feel the activity has picked up already. And as we said earlier, schools aren't concentrating so much on protocols, now they're starting to think about safety. So, this problem in the country is here to stay. And we have the solutions to help a lot of these schools and this little school district in Texas, I commend that for something about it. 47:26 School district not that far away from them did nothing and had a shooting where had to barricades chairs against the door.

47:37 Right. Thank you. And then on the equipment margin side, I don't want to beat the dead get horse, it’s being covered quite a bit here. But if I look at Q3 of nineteen -- around nineteen million dollars of equipment revenues, the margins were around twenty seven percent and I know that you talked about. So it just seems like there is a five hundred basis points impact, is that all -- I know you talked about the higher costs from the supply chain constraints and the other part in the mix. How long do these impacts on supply chains you think exists, is that another quarter? And then really the freight issue on the gross margins, once that trades -- once that comes back to normal, do you think that the current product mix of greater alarms is more representative going forward.

48:35 Well, I think the supply chain issues are going to last for six more months, maybe a year, it's hard to know exactly. I don't think it's going away next quarter as an example, it's here for a while. And I think we're doing a great job dealing with it. I think at nineteen point five million dollars level last year, that's what it was. The margins were higher, it was a different time, the radios have become a larger percentage of total hardware. That's a big reason for the margin differential. 49:23 But when schools security comes back and even other areas that help the locking and access parts of the business, then that even sit out somewhat, the playing field becomes more level. We're not quite there yet, it's getting better, that part is getting better, but we're not there yet. And then the radios won't be as dominant part of the overall hardware, although they're doing so well it's hard to say for sure, we sell radios to a lot of big players now and the demands is unbelievable. So that's partly why also that radios are such a big chunk of the total percentage of hardware sales. 50:08 But I think it'll even out a little more as the year progresses. I don't think it'll be what you see now. It may take a couple of quarters to get to that point. But we were really happy that even at a level where the margins on hardware were twenty two percent, which we weren't happy about even. 50:29 Look at the numbers that we put on the board even with that, that's -- we were happy that our sales grew thirty four percent and that recurring was a strong as ever and the margins were strong as ever and that , we did really well even with the twenty two percent. Imagine once the twenty two percent goes back to what it used to be.

50:58 Right. And more radios you sell that translate – that’s a good thing that translates into higher recurring revenues. Are all of these radios have attach rates on revenues -- recurring revenues for you or are some of these sort of –

51:16 They all have recurring revenue stream with them. They're all enrolled on our cloud. We built a cloud and knock network operating and they all get enrolled and then the dealer pays us to utilize our knock service. And it goes on and on and on for years. That's way I call it plant in a sees, the more of these radios that are installed and enrolled the runway of getting continues recurring monthly revenue out of them is ahead. So that's why we're pushing very hard to get lots of radios out there. 51:57 We have about five million commercial buildings that have to be retooled, get off the copper, because copper are being supported by the carriers. So we have a lot of commercial buildings, we have millions of residential jobs where people want their alarm to work, but the carriers don't want to support dial up, which was copper. So that will go to radio also. Then you have the access control and locking, which now with their access is the better path the dealers to get service to win more jobs and the side benefit to them is, again, recurring revenue instead of just a service agreement to replace broken parts, now they can supply service to their end user accounts. So it's all part of the vision that we have to convert the company by twenty twenty six to one hundred and fifty million dollars’ worth of recurring revenue. 53:01 And remember years ago, we predicted forty million dollars by the end of last year and lot of people looked at us cross eyed and we did it and now we have a lot of momentum so the twenty twenty six year we're very comfortable with getting the recurring revenue with the new products, with the conversions of copper, with the fact that the 3G is coming down, the carriers is not going to be supplying 3G service. So those radios that are out there that are in 3G has to be converted over to the new technology, which we have. And so there's a lot of good things, a lot of wind at our back.

53:46 Got it. Thank you. Thank you for answering questions again. Congratulations, I'll take to offline. Thanks.

53:53 Thanks, Raj.

53:57 Our next question is a follow-up question from the line of Jim Ricchiuti. Please proceed with your question.

54:05 Hi thanks. The other question I had is just with respect to new product pipeline. I wonder if you could talk a little bit about, again, I don't expect you to pre announce new products ahead of their release, but in terms of what you're doing and working with some of the larger players in the market. How active is the new product pipeline? And can you give us a sense as to whether some of this may begin contributing later in the fiscal year or is this looking out to fiscal twenty?

54:47 Well, we have a lot of new products in the pipeline in each of our divisions, the alarms, the connectivity division, the access control division, in the locking division. And now the products are being integrated. So that the dealers can get all the answers that they need on customization on commercial buildings for access control locking and radio -- Starlink radio. 55:19 So there's a lot of new development going on all the time. And a lot of the big companies that are the major names in the industry are coming to us to get products because in fact, technically they perform better. They have more functionality, we're able to customize them as required by the large companies and we can deliver. 55:49 So we have a lot of good things. As I said, why don't you come to the ISC show in November and see we've got -- you'll hear and feel the pulse of what the dealers are talking about. And you'll see that we are on track to pick up a lot of share. We have a lot of happy dealers because they're making recurring revenue where they never made it before in the past and we get the recurring revenue. But every product that gets enrolled in our back end knock, we get a recurring revenue stream that's paid to us by the dealers. And the dealer makes a large recurring revenue amount and we get a portion of it. So we want lots of dealers out there, closing more deals and getting more work because then they roll the products on the cloud. So come on to the show.

56:53 Okay. Thanks for the invite. Last question, Kevin, it sounds like, you gave some nice color in terms of how to think about OpEx. You seem to be pretty well insulated in terms of cost and the DR, but I'm wondering apart from higher trade show expense and travel expense. Any other cost pressures that you’re feeling in the business that might change some of that OpEx assumptions looking out a couple of quarters?

57:29 No, I think -- the big ones is trades show commissions, we get salary increases every year, we're doing more advertising than we did a year ago, things like that. That's the main thing. There's nothing unusual on the horizon that would change the picture. As you probably know, we manage both SG&A and R&D really tightly make sure that just because sales grow, we don't have the expenses grow dramatically along with it. 58:09 We take pride that the percentage of SG&A as a percentage of sales and R&D as a percentage of sales is dropping as our sales grow. So I don't expect anything unusual.

58:24 Thank you.

58:28 There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

58:35 Okay. Thank you everyone for participating in today's conference call. As always, if you have any further questions, please feel free to call Patrick, 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 Q2 twenty two results. Bye-bye.

59:03 Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.