Welcome to the NAPCO Security Technologies Fiscal Q4 and Fiscal 2023 Earnings Call. Our host for today’s call is Patrick McKillop, Vice President of Investor Relations. At this time, all participants will be in a listen-only mode. Later, we will conduct a question-and-answer session. I would now like to turn the call over to your host, Mr. McKillop, you may begin, sir.

Thank you. Good morning. My name is Patrick Mckillop, Vice President 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 fourth quarter and fiscal year 2023. 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 in the Investor Relations section of our website, www.napcosecurity.com. On the call today is Richard Soloway, President and CEO of NAPCO Security Technologies; and Kevin Buchel, Executive Vice President and CFO. Before we begin, let me take a moment to read the forward-looking statement. 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. 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, we cannot guarantee future results, level of activity, performance or achievements. We 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. I will turn the call over to Dick in a moment, but before I do, I just want to mention that we will be attending the Lake Street Capital Conference on September 17 in New York and are planning for some non-deal road shows in the near future. Dick, the floor is yours.

Thank you, Patrick. Good morning, everyone, and welcome to our conference call. Thank you for joining us today to discuss our results. We are very pleased to report our fiscal fourth quarter record sales of $44.7 million, which was the 11th consecutive quarter of sales growth. Our fiscal year 2023 sales of $170 million were also a record. Recurring revenue continued to grow at a strong rate and the annual run rate is now approximately $67 million based on July 2023 recurring revenues. Our balance sheet remains strong with our cash balances at approximately $67 million and we have no debt. Also, we are pleased to report the company announced its quarterly dividend of $0.08 per share to be paid on September 22, 2023 to shareholders of record on September 1, 2023. This represents an increase of 28% from the previous quarterly dividend. We continue to focus on capitalizing on opportunities in our key end markets, which are mostly commercial, such as office and apartment buildings, retail stores and restaurants, schools, hospitals, airports and government buildings. Our product lines such as wireless fire and intrusion alarms, school security solutions, enterprise access control and architectural locking products are delivering growth to our sales, and we are working every day to continue this growth pattern. The key metrics that the management team here at NAPCO focuses on are growth, profits and returns on equity and controlling costs. These metrics are important for us as well as our shareholders. We look forward to continuing our growth streak in fiscal 2024 and beyond. Before I go into further detail, I will now turn the call over to our CFO, Kevin Buchel. He will provide an overview of our fiscal fourth quarter and fiscal 2023 results, and then I’ll be back with more on our strategies and outlook. Kevin?

Thank you, Dick, and good morning, everybody. Net sales for the three months ended June 30, 2023 increased by 3% to a quarterly record $44.7 million as compared to $43.2 million for the same period a year ago. Net sales for the 12 months ended June 30, 2023, increased by 18% to $170 million as compared to $143.6 million for the same period a year ago. Recurring revenue for the quarter increased 27% to $16.1 million as compared to $12.7 million for the same period last year. Recurring revenue for the 12 months ended June 30, 2023 increased 30% to $59.9 million compared to $46 million for the same period a year ago. Our recurring service revenues now have a prospective annual run rate of approximately $67 million based on July 2023 recurring service revenues, which compares to the $63 million run rate based on April 2023 recurring service revenues, which we reported back in May. Equipment sales for the quarter decreased 6% and to $28.6 million as compared to $30.5 million for the same period last year. This decrease was primarily due to a decrease in radio sales as partially offset by increases in both our Alarm Lock and Marks door locking products. The slowdown in radio sales in Q4 was primarily the result of excess inventory in the distribution channel as several distributors loaded up with radios when the impending 3G Verizon sunset was approaching and they wanted to ensure that they had updated 5G radios in their inventory. We believe this is a temporary situation, and we expect radio sales to continue to be a key contributor to our hardware sales and lead to the continued growth of our highly profitable recurring revenue. Equipment sales for the year ended June 30, 2023, increased 13% to $110 million…

Kevin, thank you. For fiscal year 2023 showed continued growth with record sales and profits, and we look forward to breaking our previous record of 23 consecutive quarters of growth, which we had prior to the COVID pandemic. We are not satisfied with the equipment margins of 18% during our fiscal 2023. However, we are pleased to have generated $27 million in net income which is 16% of net sales. Also $34 million in adjusted EBITDA, equaling 20% EBITDA. Margins is another positive takeaway from the fiscal year results. As we enter into fiscal 2024, we believe that most of the additional material and freight costs due to the supply chain crisis are behind us. This should bode well for improved equipment margins. The commercial fire log business is a mandatory nondiscretionary items. Commercial buildings must have and maintain a fire alarm system in order to receive the certificate of occupancy. Given the high profitability and essential nature of this business, we focus on this as a key area of our resources. Recurring revenue generated growth, increasing 27% for the quarter and 30% for the fiscal year. The annual run rate for recurring revenue is now approximately $67 million as of July 2023. We estimate that there are millions of commercial buildings of all types such as offices, hospitals, schools, coffee shops, gas speed restaurants and others that still require upgrades from old-fashioned copper phone lines. Our StarLink radios have the widest coverage for both AT&T and Verizon service and which feature sets, which our dealers love. We continue to focus on our previously mentioned goals of $150 million run rate in recurring revenue and $150 million of equipment revenue by the end of fiscal 2026. While the exact time frame for hitting these goals is uncertain, achievement of those…

[Operator Instructions] And our first question comes from Jim Ricchiuti from Needham & Company. Your line is open.

Hi, thank you. Good morning. So I wanted to talk a little bit about the puts and takes in the radio business. I mean it sounds like you continue to see strong demand for fire radios and where the overhang is in the channel is on the intrusion StarLink radios. So two questions. Number one is, can you talk a little bit about how you see the channel inventories being worked down on the – for the intrusion StarLink radios, what kind of sell-through are you hearing from your channel partners? And then I have a follow-up question as it relates to the fire radio business.

Okay, Jim. So we get statistics from our key distributors that we watch very closely. And what we see with a couple of these distributors, not all of them, is a glut of inventory on the smaller radio and it seems to have come about because they loaded up on radios during the height of the preparedness for the 3G sunset. 3G sunset for Verizon was January 2 or 3 of 2023. Nobody wanted to really get caught short, and not everybody could deliver radios. We’ve talked about this on prior calls. We were able to deliver when others couldn’t and that ability to deliver has helped us. We’ve picked up more business, some large accounts, which we’ve talked about. But these distributors, they didn’t want to get caught short, they bought up a lot and they bought it for – because of the 3G sunset because of lack of delivery from others. And now they have too much because now the things have settled down, the 3G sunset is finished. They have to work that inventory down and we’ll help them. This happens periodically all the time. The demand for radios as a whole is very good. That’s why you saw it grew by 27% for the quarter versus a year ago. That’s why the run rate went from $63 million to $67 million, and we can’t judge the strength of recurring revenue based on a couple of distributors having too much of one type of radio. So we’ll work with them to move it, we believe it will move, and we still feel very good and confident about our recurring revenue and its growth for the future.

Let me add one more thing. So the radios that Kevin is talking about are the low-cost residential, small business pizzeria-type radios, and that business is moving along but we had to supply into the distributors because they ask them, and we produce a a lot of them. They’re a little backed up. But what we – and that is a radio that’s added to an existing alarm system to replace the copper. So we expect that to continue. The sell-through has been – is good on that. But the glut will be eroded down and will get more normalized. At the ISC show out West a few months ago, we showed the entire alarm system with a built in StarLink radio and with technology beyond everything in the marketplace, it was a tremendous hit. So that radio, that black radio is now being built into a complete control panel for automation, residential, small business, and that will be out in the next 60 days. So what’s going to be contributing to the recurring monthly revenue is not only the sell-through of the black radios, which upgrade the existing alarm systems from copper, but it’s also this brand new, unique, alarm panel radio, which will be the new work. And these are the type of things we do in our engineering department with [eight] (ph) additional products, which are going to add a lot of recurring revenue to the company going forward. And it’s a very exciting future we have with this. And I want everybody to understand that. The black radios are for retrofit. And that will continue because you’ve got millions of jobs that still need to be upgraded. And the new PRIMA radio is a complete alarm system for new jobs and you know that people need more security than ever before, we need security for homes, we need security for businesses, and that’s what PRIMA will do with a built-in recurring radio, where we get recurring revenue as well as a dealer. So that’s how the picture looks.

Got it. Just with respect to PRIMA, let me just ask the question. What kind of expectations do you have for this product? And maybe Kevin, how would you characterize the margin profile of this product. And then lastly, just on the fire business, fire radio business. Do you anticipate – you’ve had several strong quarters. Does this begin to plateau for you?

Fire radios – you’re going to answer Dick?

You do the fire radios please, and then I’ll talk about the PRIMA and what its potential is.

Fire radios, talked about this, is mandated. It has to be – you have to have a working fire radio in a building. They got to get away from copper. This is what we keep talking about that there’s a lot of buildings and buildings are not just high rises when you think of a building, think of buildings coming in all sizes and shapes. They all have to get away from copper. Copper is not being supported. So we believe, A, it’s mandated, B, they have to get away from it. And C, there’s millions more to come, more changes to come. So as a result of that, yes, fire radios, we believe is going to continue to be strong for years to come. It’s our number one radio, has the best margins, more than 50% of our total radios. You see what our margins are in recurring revenue. The 89%, it was 89% for the whole year. That’s because fire radios because we get more money for fire radio than the other types. So we believe this strength is here, and it’s not going anywhere. And don’t read into anything because of a lot of inventory on the black radios, fire has moved very nicely – continues to move. Now when we - Dick will talk about PRIMA, when we sell PRIMA, the recurring revenue on that is not like it is for fire radios. It’s less but it’s incremental recurring revenue. When we did our 150 goals of recurring and hardware sales, we weren’t counting on PRIMA, we didn’t even know about PRIMA. PRIMA is new, it’s incremental recurring revenue. It will help us get to our goals that much sooner. We do get less per month than we would for a fire radio. So my goal for recurring revenue when I first did the goals was 80%. We’re at 89%. We’ve got plenty of room between the goal and the actual. So we’ll watch it. We’ll see how it goes with the recurring from PRIMA.

Right. So PRIMA is the new work. The black radio is the retrofitting the copper. I figure we got 5 to 8 years of retrofitting copper with black radios because there’s millions and millions of jobs that have to be done and the dealers are doing in as necessary. A lot of dealers don’t go out and speak to their customers about upgrading away from copper. They wait until there’s an event, maybe the phone company turns off the copper on these issues with the cracking old copper lines and then they go in. Some dealers go in and start promoting right away. But we have a great radio in the black radio, and it’s moving out nicely. But the deal is putting a lot of new jobs. And our new PRIMA is for new work. And what’s going to happen is there are millions of jobs that have to be done with new radios – new radio panels. And there are some on the market now, but they’re antiquated compared to what PRIMA is going to be. Everybody at the show. The dealers came over to the booth. They see the way the door cameras work. The way the WiFi is automatically self-healed because WiFi systems signals get lost on the premise that this self-heals fixes that. Nothing on the market does anything like that. It is a great boon to the dealers because they’re not going to have to roll trucks to repair. We set up the WiFi system to do things with the camera as far as the camera going off circuit. PRIMA does it all. And it’s a beautiful-looking product and we expect great results. So we’re going to have, as far as I can see into the future, lots of business at PRIMA, as well as the retrofitting of the black radios and Fire so all these things are combined together and both are a very strong future.

Got it. Thanks very much.

Thank you. And our next question comes from Matt Pfau from William Blair. Your line is open.

Hey, great. Thanks for taking my questions. Wanted to first start on the restatement, and I was just hoping you could better explain to us what happened here from an accounting perspective. It seems a little bit counterintuitive that both inventory and would be overstated while COGS were understated. So what happened that drove that? And then on the cash component, how did that sort of tie out when the accounting was wrong on the other side of the financial statements.

So Matt, the inventory for the quarters that succeeded the June 30, 2022 physical inventory audited statements, the quarters that followed it, which was the September quarter the December quarter and the March quarter of fiscal 2023. The inventory was valued using values from the 6/30/22 audited numbers. What that means is take as an example, if a component was valued at $50 at June 30, 2022. That same $50 was used to value the inventory for the first quarter, and let’s say, the second quarter and let’s say, the third quarter. The cost of that component was coming down, no longer $50, $5 using this one example. You value the inventory at $50, you’re overstating your inventory when you put a valuation on your balance sheet. If you’re overstating your inventory and your balance sheet, that means the other side of the equation is you’re understating your cost of goods sold. It has nothing to do with cash. This is all book entries Cash is unaffected. Cash flow unaffected cash from ops, none of that is affected. This is strictly overstated your inventory – it means you understated your cost of goods sold. If you understated, your cost of goods sold, that means you overstated your net income. And that’s what it is now. we’re going to fix this, and we’ve begun the process of fixing it. You can’t use the prior year’s physical inventory valuation going forward. normal conditions, it could use it, but in fluctuating pricing times and who knows what the times are going to be going forward times seem to be better now, the fluctuations seem to be gone. But we’re going to have a system where we measure every fluctuation during the quarters and we utilize that new price if there is a new price to value the inventory in each quarter. We’ll do it at the beginning the first day after the quarter end, so on October 1, let’s say, for the upcoming end of the quarter, we’ll measure every fluctuation that exists up or down and we’ll make sure that the inventory valuation for the quarter utilizes the correct price. And that’s the best way I could explain it, Matt. It’s nothing to do with cash for those that took accounting in school, it’s – you’ve got to credit your inventory, lower your inventory, you’ve got to debit your cost of goods sold, and that reduces profits. That’s what it was.

Got it. And then with the stock down significantly from the highs, are you considering repurchasing any stock or is management team considering any personal purchases themselves?

That’s all on the table. And it’s possible we will do that. The first things first, let’s get the Qs, the restated Qs filed. We expect to do that this week. Let’s get the K filed. We expect to do that next week. And then we could look at buybacks and personal buying all this it’s all on the table. Let’s get this – our house in order with our filings and we go from there.

Got it. Last one for me, just on the radio component of the equipment hardware. I think you called out that was 20% of equipment sales, not sure if that was for the quarter or the full year, but how would that compare to the year-ago period from a percentage of sales perspective?

That was for the quarter, and it would have been greater than the prior year’s periods because in the prior year’s period, the radios were stronger in the locking wasn’t as strong as it just was. So I don’t have the exact stat in front of me, but I could give you that maybe at a later point, but I’m sure it was a much – it was a higher percentage. I wouldn’t even say much higher, it was a higher percentage.

Okay, great. Thank you. Appreciate it.

Thanks, Matt.

And our next comes from Jaeson Schmidt from Lake Street Capital. Your line is open.

Hey, guys, thanks for taking my questions. Just looking at the inventory digestion situation. Just curious how long you think that will last? I mean, obviously, it will impact the September quarter, but do you think this bleeds into the December quarter?

Well, I just want to make sure everybody understands – it’s one radio, one type of radio, and it’s with a couple of distributors, not everything, and it’s not with every distributor. We’re going to work hard to move it through these distributors. This – like I’ve said earlier, this has happened in the past. Where distributors load up on a product and they need help moving it through. That’s what we’re here for. We can help them. My guess, and it’s just a guess, it’ll take a couple of quarters to move it through. We’ll work really hard to do this, but that’s how it looks for right now.

Okay. That’s helpful. And then just as a follow-up, looking at OpEx, it sounds like there could be some incremental costs associated with better accounting controls, et cetera, how should we think about OpEx trending for fiscal ‘24?

Yes, there’s going to be a few things we’re going to have to spend some money on won’t hesitate spending the money. We have the money, but software upgrades, personnel. Those are the 2 main things that I can point to that would make our OpEx more than it was in fiscal 2023. If I’m putting a number on it, I would say let’s assume $1 million more in SG&A in ‘24 versus ‘23 for this type of thing.

Okay. Sounds good. That’s it for me. Thanks guys.

Thanks, Jaeson.

And our next question comes from Chad Bennett of Craig-Hallum. Your line is open. Mr. Bennett, your line is open. Moving on, we have Raj Sharma from B. Riley. Your line is open.

Yes, thank you for taking my questions. I just wanted to understand the alarm sales. If you look at the composition in Q4 show a pretty substantial decline of about 33% year-on-year. How much of that impact do you think was from the Verizon sunset? And – and you – I think you commented that the dealers they started buying up, there was a lot of activity. Was that activity about 2, 3 quarters prior to the sunset date of Jan 2?

Yes. And then it was prior. Yes. Well, I’ll answer this part first, then you could follow up. It was before they didn’t want to be caught short. So they weren’t going to start buying it January or even December. By then, they wanted to have it in stock. So this led up to the sunset, but like the June quarter, June of ‘22, was at its height. And even the September quarter of fiscal ‘23 to some degree, after that, it was over. The guys were they had to be in position to have equipment because the sunset was upon them. So we saw a lot of activity and again, it wasn’t just because of the sunset. It’s also because of delivery. We were one of the few manufacturers who could deliver radios during these crazy times. And as I’ve said before, it was the crazy times was almost like a blessing in disguise because it allowed us to pick up some really big dealers, which we’ve talked about before. And these big dealers they couldn’t get delivery. They got to look at our product. They got to see what our radios were all about. The fire radios is the one I’m talking about, and they made the fire radios, their radio of choice. And that probably wouldn’t have happened if delivery was going on from the competitors, but they couldn’t deliver we could. They had guys who couldn’t get product, they were nervous. You had the 3G sunset. You have this radiomania going on. Which was at its high in June of 2022, continued in September of ‘22, which is Q1 of fiscal ‘23. And then as the year progressed, it normalized our cost didn’t die, normalized, demand became more normal, and it’s still good demand. So just because we had this heightened situation, we shouldn’t feel like the bottom is dropping out. Business is still strong. The recurring stats are still good. We did have this situation.

It was a great thing for us to ship these radios when our competitors couldn’t do because once those radios go in, we picked up brand new market share quickly because from the competitors, and that recurring revenue stream continues on forever. So it was a blessing. Some of the distributors said we want to capture the volume of Napco radios, and they bought a lot of radios to have in their stock and they would never run out because they didn’t know when radios would be available from others. So they moved everybody into that place and they bought unusual amounts. That’s skewed it a little bit. But the radio business is strong, and it’s going to get stronger. And with our PRIMA product, and the fact that more copper has to be converted to radio, the future is very, very bright.

Got it. So I guess they will be tough comps, you expect tough comps to persist in the first half. Is that fair on the equipment side?

I think the radio comp is tough for Q1. I don’t think it’s tough after that. Q1, I think, was the last of the hard comps for radios. By the same token, locking comp, not tough at all for Q1. So kind of like offsetting each other.

Right. Do you attribute any of this decline in alarm and intrusion to a commercial residential slowdown or was it entirely because of the Verizon sunset?

I think it was – I think that some of the distributors reacted to capture the market by having tons of inventory on their end, and satisfy the sunset, the dealers to satisfy the sunset. But as Kevin mentioned, this will work its way through, and we’ll keep adding new products which have recurring revenue, complete control panels, other radios for other applications. So that’s how we see the business.

Got it. Thank you. That’s it for me and I’ll take it offline. Thank you.

Thanks, Raj.

Thank you. And we have a question from Nick Mattiacci of Craig-Hallum. Your line is open.

Hi, this is Nick on for Chad Bennett. Thanks for taking our questions. So the door locking revenue is up 25% year-over-year, but not quite a sequentially strong as last year. Can you just talk about how that locking segment performed relative to your expectations and how we should think about growth in that segment for the September quarter?

It performed really well – it was actually even better than I thought. It’s – this segment has done really well for 3, 4 quarters in a row. It actually – there’s 2 locking pieces to it. We have a Alarm Lock, and we have Marks – Alarm Lock did just as well as it did in Q3, and Marks did even better in Q4 than it did in Q3. So they both did well. I wouldn’t read anything into whether sequentially, it was a little up or a little down, was way more in each of the quarters in Q3 and Q4. And than it was in the preceding year’s period. And as I said earlier, the Q1 comp is fairly I’ll call it fairly easy. So I have very good expectations for the locking in this upcoming quarter as well. The locking business benefits from the school security segment, airport upgrades, hospitals lots of things, but those are the 3 that stand out. The school security part is difficult to measure. I always get a how much is it? Tell me how much it is. They buy through distribution, so we don’t know. One of the things we mentioned in the release today was the school job at the University of Arizona did. They had a professor that was killed about nine months ago. They recently put in 700 of our Trilogy electronic locks I didn’t really know about it. They bought it through a distributor. The only reason I heard about it was because there was a big news article and a big thing on TV out there. So a lot of times, we don’t go through distribution. Sometimes we know, sometimes we don’t. But I know when locking is strong, that is a big part of it. And with all the craziness going on, I believe that’s here to stay. That’s not going anywhere. So our expectations is for locking to stay strong for various reasons.

One thing I’d like to mention is. Kevin talked about the Trilogy lock, – the Trilogy locks are the standard of the entire locking industry. That’s the lock everybody is using. All the key larger jobs you’re using the commercial lock, it’s being put in everywhere. And more trouble around the U.S. with schools, with people entering office buildings and taking out things because of the fact that there’s a lot of people that are not working. They’re putting in Trilogy locks and all of our locks, especially the Trilogy locks everywhere. So it bodes well that Trilogy locks should be – will be selling continuously and we’ve now expanded the Trilogy lock line where they now work with radio control. They work as stand-alone on the virtual doors. And it’s a very, very unique line of products. And that’s why the distributors are carrying it. And we don’t always hear that at the sale. We just see the amount of volume of larger distributors and it’s greater, much greater than we see than last.

And then I think in the release, you talked about an expectation for much improved gross margins this year. I guess the service gross margins are a little less volatile than equipment gross margins, but should we think about that 30% equipment gross margin in Q4 sort of being the baseline or how else should we think about equipment gross margins this year and especially related to the seasonality throughout the year?

Historically, the equipment gross margins used to be in the 30s. And then as the volume picked up, which usually was in our fourth quarter, the June quarter, and the equipment margins would go up into the high 30s, sometimes low 40s. That all went out the window during the supply chain crisis and our need to have to buy component parts at very expensive prices just to keep things moving. So buying a $50 micro that’s normally $5 from a broker just to keep the radios moving knowing that we would get recurring revenue at the end of it. That’s why we did it. And hey, as we got rating improved radio sales, big new dealers, big customers, et cetera. But now those expenses are behind us. And not only the cost of the parts, but the airfare, the freight. One of the big things with the supply chain prices was freight super expensive. Whether you’re flying or putting it on a boat, the pricing was crazy. A lot of it’s come back to Earth. And so we wound up having by our standards poor margins, poor hardware margins for the year. So here we are, we did $110 million of hardware sales in fiscal 2023, with an 18% gross margin, which is well below what it should be and what we say, what it will be. So going forward, you saw in the fourth quarter, margins was 30% for hardware. That’s more normalized. Now whether we’re going to be 30% right out of the gate in Q1, I’d be more conservative about that. I believe we will build ourself up as the quarters go by to being in the 30s, and that will become the more normalized level of margin as it used to be. And then probably go beyond that as the volume kicks up even higher, the volume kicking up leads to the overhead absorption and margin expansion from manufacturing in the Dominican Republic. That’s one of the benefits you get. So standard will be in the 30s. I take a quarter or 2 to get there.

Got it. That’s all for us. Thanks for taking the questions.

You’re welcome.

And our final question comes from Jim Ricchiuti from Needham & Company. Your line is open.

Yes. Kevin, just with respect to the last comment. I get the fact that the increased volume will be will benefit you from – in terms of greater absorption in the Dominican Republic. But I’m wondering the other way around is with this bit of an air pocket that you’re seeing in the lower-end intrusion radios, black radios what about the potential headwind from utilization being not as strong in the Dominican Republic in the next quarter or 2?

Well, that could have an effect. But on the other side, the mix will be better. So in Q1, as an example, of last year of fiscal ‘23, the mix was much more heavily leaned towards the radios than the locking Radios, which we love, that’s a lower gross margin item, best case, we don’t care so much about the margins. We do care a lot about the recurring revenue, which follows. But for locking and for access control for the other pieces of the business, those are much higher margin items. And so we might lose some overhead absorption if the radios are much lower. I don’t think they will. I think only on one type, it might be, but we’ll pick up absorption from blocking. We saw it in the fourth quarter. There was overhead absorption pickup in the fourth quarter of this fiscal year that we just finished. And that had the lower radios and it had the improved locking and both the mix help and the DR overhead absorption help. So eventually, we’re going to get to the point where it’s all going and it’s all working where the radios are up, the locking is up, it’s all up, then we get the best of both worlds.

Thank you.

Okay, Jim.

I’m seeing no further questions, I’ll turn the call back over to our host.

This is Richard Soloway. I want to thank everyone for participating in today’s conference call. As always, should 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 with you all again in a few months to discuss NAPCO’s fiscal Q1 2024 results. Have a great day, everybody. Bye-bye.

The meeting has now concluded. Thank you for joining, and have a pleasant day. Goodbye.