Other highlights of the report show that recurring service revenue for the quarter increased 35% to $11.0 million as compared to $8.2 million for the same period last year. Recurring service revenue now has a prospective annual run rate of $46.2 million based on January 2022 recurring revenues. Gross margin for recurring service revenue for the quarter was 87% as compared to 85% for the same period last year.

However, net income for the quarter was $1.0M as compared to $3.2 million for the same period a year ago, a 68% decrease. This decrease was primarily the result of supply chain disruptions and a shift in product mix to more Starlink cellular radios (which initially generates lower gross margins but leads to the profitable recurring revenue), both of which affected hardware gross margins in the quarter. Net income was also negatively impacted by a non-cash, $1.3 million stock based compensation charge relating primarily to stock option awards of 388,000 options (as adjusted for a 2:1 stock split) issued during the quarter.

Despite the solid sales growth in Q2, the company stated that its ability to fully meet the strong demand for its products is being constrained by the ongoing supply chain and logistic challenges. According to the report, Napco's delivery performance has been excellent during these very difficult Covid times. However, supply chain constraints have slowed the pace of revenue realisation and have led to historically high backlog levels which may continue in 2022, particularly for electronic products. The strong sales performance of the 2nd quarter was accomplished, in part states the company, because Napco continues to remain focused on aggressively managing these logistical challenges to ensure that it remains well positioned to meet the needs of customers. The company is managing these issues by re-engineering products, developing alternative supply sources and delivery methods, and continuing to work closely with customers and suppliers to navigate through these extraordinary times.

Mr. Richard Soloway, Chairman and President stated, "We are confident that our seasoned management team has the experience and methods from previous supply chain shortages, such as multiple chip famines, to deal with the volatility associated with shortages of electronic components, increased shipping costs and raw material price inflation. We remain confident in our ability to continue to generate strong growth in both equipment and recurring revenue. Additionally, we are prioritising and actively addressing strong customer demand in this universally difficult supply chain environment, including a series of flexible and accelerated production measures to match our customers' needs.

School security jobs are returning, the recently passed infrastructure bill will lead to many airport renovations which will require locking and access products that we offer and recurring service revenue remains strong.  We are also encouraged by the increases in radio activations, increasing year over year by 46%, increasing sequentially by 11% in the month of December, and increasing 38% since July 2021."

Soloway concluded, "Our fundamental strategy is to provide seamless security solutions for our customers and to continue to grow recurring revenue with both existing products as well as new ones, such as the unique to the industry Air Access products, which should generate a new stream of recurring revenue from the locking and access control segments of our business. Now, all segments of our business will be in position to generate recurring revenue. We continue to remain focused on generating strong revenue growth as well as increased profitability for the balance of fiscal 2022 and beyond."