Kevin Buchel: It’s both, Jim. So, adding the new distributor certainly helped. But it’s not like we loaded up this new distributor and it gave us a one-time hit improvement to radio sales. We didn’t do that. We sold this new distributor normal amounts, enough inventory where somebody goes into their distribution center and they have the inventory, not too little, not too much. It’s a contributor. But besides that part, the contribution we saw was helping the other distributors move through their inventory. And they move it through, and it creates new demand with the dealers. That’s what this is all about. These distributors are just shelves. The bottom line is we have to create demand at the dealer level. Having the new distributor with 115 new branches certainly helps, but also pushing a lot of this inventory through to dealers at all the branches of all the distributors is the biggest factor. And we expect demand to be strong going forward.
Jim Ricchiuti: Hey, Kevin, on the — I’m sorry, Dick. Go ahead.
Richard Soloway: There’s going to be 30,000 security installation dealers visiting us in Las Vegas, which is the biggest show. And Fran can set people up to come and see the dealers as they come by our booth. It’s going to be upfront, it’s going to have the widest range of radios, the entire industry right there, all of our new products will be right there. So, we’re going to get a lot of leads. And as I said, there’s millions of jobs that have to be upgraded from legacy copper. There are huge numbers of jobs of new work that have to be installed. When you’re putting up a building, you must have a fire alarm, burglar alarm today, residential alarms, because of what’s going on in society. So, we’re going to get a lot of dealers, a lot of new leads, and we have a great sales group of guys that are going to follow up on those leads.
So, we expect to get even more pull-through between our existing distributor base that we have, plus our new distributor, which is the largest in the security industry, that will generate additional continuous growth of radio sales.
Jim Ricchiuti: Hey, Dick, what kind of traction are you seeing from Prima? I know it’s early days yet, but what’s the initial read on how the product is doing?
Richard Soloway: I think that the product has tremendous legs to it. The product is beyond anything else in the security industry with its functionality, ease of installation, goes in in 10 minutes. With what’s going on in society, you need an alarm system for your business and you need an alarm system for your home. And the Prima was designed so that the actual salesman that sells the job to the end user customer can install it in less than 15 minutes, very, very quick, or we can leave it behind for the consumer to DIY it if he wants to do that. So I think the opportunities are tremendous. As we said, it takes a year or so for a new product. And this was only developed — it was only sent to the market a few months ago to become a success.
So, we expect that considering the fact that alarms are being put in, and they’re a little old fashioned that the competitors have, and this is very, very modern and installed so quickly, this will become a standard of the security industry. And every alarm that goes in that’s Prima has a recurring revenue tail to it, so it’s going to generate a lot more recurring revenue. Part of our 2026 goal didn’t even include it. It was just the existing products. But this will add more to the whole mix of what we’re doing.
Jim Ricchiuti: Got it. Final question for me. Kevin, just looking at the expense side, how much of the higher costs for the stepped-up financial controls were in the quarter, or is this going to be more fully reflected in the March quarter? And lastly, just on tax rate, should we assume the similar tax rate?
Kevin Buchel: So, on the first part of your question, Jim, some of the additional costs went into the SG&A in this quarter. We started with Deloitte. Deloitte is now our auditors. So, obviously, that extra cost has started. We’ve only done one quarter with them, Q2. We have our consulting firm, so that’s filtered into the numbers. What you haven’t seen yet are the additional employees, the internal auditor, and the additional cost accountants. We’re in the process of doing those hires. I expect that will start in Q3, quarter that we’re in now. So, we’ll see that going forward. And those are recurring expenses, additional employees, as is the Deloitte piece, the consulting [Technical Difficulty]. Our tax rate has been 13%. Every quarter, full year, when I model, I use 15%, but we’ve been running at 13%. So, unless the laws change, I continue to use 15% for modeling.
Jim Ricchiuti: Okay. Thank you.
Richard Soloway: Thanks, Jim.
Operator: Your next question comes from Matt Pfau from William Blair. Please go ahead.
Matt Pfau: Hey, great. Thanks for taking my questions, and nice quarter, guys. I wanted to first ask on the new distributor that you added. Sounds like there was some impact there to hardware in the second quarter. How should we think about that going forward? Is there going to be an inflection or is this more of a slow ramp?
Kevin Buchel: Yeah. Our distributor has been around a long time, this new distributor, with the 115 branches. We dealt with them in the past. They’re new to us now. This wasn’t a case of loading up, load up all 115 branches, get a big hit, and then things slow down. This is a more normalized ramp up. Whatever impact they had in Qs one and two, we expect it to improve dramatically. They’re the biggest security distributor out there. And we’ve only been dealing with them for a little bit of Q1 and all of Q2. So, the potential is much more than what we’ve seen. Again, we didn’t load them up. It’s natural business, which is the way we want it. We don’t want to get in a situation where we load them up and then they want to return it and it’s not like that. We want sales that’ll stick, and that’s how it’s going to be with these guys.
Matt Pfau: Got it. I know it’s early, but are you seeing new installers start to use NAPCO products? And are you getting inbounds or developing relationships with new installers as a result of the new distributor agreement?
Richard Soloway: We’re seeing new larger customers due to this arrangement, because certain large customers use this distributor as their main distributor. So, with introductions and the fact that the products are superior to what’s on the marketplace is great for us. These new customers have said, “Wow, I didn’t realize the functionality we get and the ease of installation we get for our crews that are out in the field.” And once they see this, they become adopters of the product. So, it’s a great relationship because there are certain dealers that want to use this particular distributor that only uses distributor. So, that opens those doors in a big way.
Matt Pfau: Great. Thanks for taking my questions, guys. Appreciate it.
Kevin Buchel: Thanks, Matt.
Operator: [Operator Instructions] Your next question comes from Raj Sharma from B. Riley. Please go ahead.
Raj Sharma: Yeah, thank you. Congratulations on the nice quarter, guys. My question is on the growth rate for the next few quarters or the next few years. Alarm and intrusion this quarter is about flat and locking was up 10%. Should we expect — what kind of growth rate should we expect for the next few quarters? In-line or ramping up?
Kevin Buchel: Alarm was actually up this quarter. It wasn’t flat, it was up by about 5%, actually. So, we expect all in, we want to be 10% or greater. And this 6% that we were up for this quarter was very encouraging as we get back to a 10% or greater growth rate for hardware. In order to do that, we need all the players to be a part of it. That means the intrusion side, the locking, and the access. The locking has been doing great, two companies, Alarm Lock and Marks, both firing on all cylinders. NAPCO was hurt by the radio decline, came back up 5% this quarter. We expect more, more because of Prima, more because of the new distributor, and more because radio sales will come back. So, as we go forward, 10% or greater is what we’re looking for.
Raj Sharma: Great. And the locking is the similar sort of a growth rate or higher?
Kevin Buchel: Locking has been higher, being conservative, modestly, 10%. But they can do a lot more and have been.
Raj Sharma: Right. And next question is recurring revenues. The retention rates must be pretty high. Is there any sort of number on the retention rate or the number of devices that are live?
Kevin Buchel: The retention rate is very high. Churn is a big word that’s used when you’re in the residential space. We’re mostly commercial. Churn is insignificant. Now, when we have Prima being a bigger part of our sales, there may be a churn rate. It’s residential. Residential people change their minds. They decide they want a system, then they don’t. We’ll look at that when we get to that point. But for right now, where we are, churn is inconsequential. And there’s roughly 750,000 radios that are generating the run rate of $76.5 million. So, to get to our $150 million goal by 2026, the way we look at it, essentially, we got to add another 750,000 radios. And that’s not a lot when you consider the millions and millions of opportunities that are out there.
