Napco Security Technologies reported first-quarter revenue up 1.7% to $50.0 million, but shares fell about 17% in Monday trading. Equipment sales dropped 7.3% as two locking distributors cut orders, while recurring service revenue, which carries margins above 90%, grew and offset the decline. Net income rose 6.9%, but mostly because of a $1.0 million litigation credit; excluding it, EPS was flat at $0.34. Gross margin rose to 58.7% from 56.6%, mainly due to a shift in sales mix, while free cash flow fell to $2.3 million from $11.4 million, largely due to a litigation payout. The article says to watch whether equipment revenue recovers and notes the recurring revenue run rate is now about $106 million.
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