Greetings, and welcome to the NAPCO Security Technologies Third Quarter 2014 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now turn the conference over to Mr. Peter Seltzberg of Hayden IR. Thank you, Mr. Seltzberg, you may begin.

Good morning, and thank you for all joining us for today's conference call to discuss NAPCO's financial results for the third quarter ended March 31, 2014. By now, all of you should have had the opportunity to review the press release discussing the results. If you have not, please call our office, Hayden IR, at (646) 419-4300. We'll immediately send it to you by either fax or email, your choice. On the call today is Richard Soloway, President and Chairman of NAPCO Security Technologies; and Kevin Buchel, Senior VP of Operations and Finance. Before we begin, let me take a moment to read the forward-looking statement. This conference call may contain forward-looking statements that involve numerous risks and uncertainties. Actual results, performance or achievements may differ materially from those anticipated in such forward-looking statements as a result of certain factors, including those set forth in the company's filings with the SEC. With that out of the way, let me now turn the call over to Richard Soloway, Chairman and President of NAPCO Security Technologies. Dick, congratulations on the quarter. Please go ahead.

Thank you, Peter. Good morning, everyone. Thank you for joining NAPCO's quarterly conference call to discuss the financial results for the 3 months and 9 months ending March 31, 2014. The third fiscal quarter was one of solid progress on several fronts, and we believe we are well positioned for a strong finish to the year, which we are confident will be our first of many years of growth to come. As a reminder, our business tends to be highly seasonal, with the largest contribution at the top and bottom lines coming in the fiscal fourth quarter. As we move into what has been historically our strongest seasonal quarter, I believe we are well positioned strategically as we have been in the history of NAPCO. During the third quarter of fiscal 2014, we delivered significant improvement in profitability, with gross margins and net income both increasing for the 3 and 9 months. We saw rather large increases in our higher-margin recurring revenue, and our higher-margin Access Control and locking products to drive these improvements. At the top line, our revenue gains were modest for the 3 months as severe weather slowed demand in our residential intrusion line of products. As many of you probably know, most of the Northeast United States experienced abnormally severe winter weather this year, as our winter was unusually cold and snowy, and the cold weather lasted into April. And this had an impact on buying decisions by consumers and, working up the chain, delayed installations and equipment purchases from dealers and our distributors. We estimate the weather resulted in approximately $1.5 million of delayed revenues in the quarter, and absent this impact, we'd be reporting revenue growth of more than 9% in the quarter. This is simply a situation of timing, as we do not…

Thank you, Dick, and good morning, everybody. Revenues for the 3 months ended March 31, 2014, increased 1% to $17.3 million compared to $17.2 million in the same period a year ago. As Dick mentioned, revenue growth was impacted by the severe weather, which affected residential intrusion sales. We estimate this had an approximate $1.5 million impact on third quarter revenues. For the 9 months, sales increased 7% to $52.9 million from $49.6 million in the same period a year ago. The increase in sales for the 3 and 9 months was due to increased sales of Access Control products and door-locking products, which was partially offset by decreases in intrusion products. Gross profit for the 3 months ended March 31, 2014, increased 14.3% to $5.3 million or 30.8% of sales compared to $4.7 million or 27.1% of sales for the same period a year ago. Gross profit for the 9 months increased approximately 15% to $15.4 million or 29.2% of sales compared to $13.4 million or 27.1% of sales for the same period a year ago. The increase in gross profit for the 3 and 9 months was primarily due to the increased sales and a favorable shift in product mix to higher margin door-locking and Access Control products. This also demonstrates the impact of increased recurring revenue, as well as our overall efficiency as the sales volume increases. Selling, general and administrative expenses for the quarter increased $155,000 or approximately 3.5% to $4.6 million or 26.4% of sales compared to $4.4 million or 25.7% of sales for the same period last year. Selling, general and administrative expenses for the 9 months increased by $675,000 or approximately 5.1% to $13.9 million or 26.4% of sales compared to $13.3 million or 26.8% of sales a year ago. The increase in…

Thanks, Kevin. I am pleased with the progress we are making in expanding and balancing our portfolio of high-tech, diversified products to deliver sustainable growth and profitability. Our suite of products and services positions us to meet the changing and heightened demand for security products, both by consumers who increasingly recognize the benefits of monitoring and controlling their home systems from almost anywhere via their smart devices, which generates multiple recurring revenue for these services, and to our long-standing presence in high gross margin commercial security solutions, addressing rapidly-growing sectors such as education. We are confident, we are positioned for our first year of growth in recent years, and we head into the final quarter of our fiscal year. The fourth quarter has historically been our strongest due to the seasonality of our business, with many property owners waiting to secure their homes and buildings before their summer vacations. This concludes our formal remarks. Kevin and I would like to open the call for questions. Operator, please proceed.

[Operator Instructions] Our first question is from Walter Ramsley of Walrus Partners.

Could you spend a minute and just kind of describe how the weather affected the residential business? I'm not sure I completely understand why a little snow would deter the dealers from installing those things?

Walter, it's Dick. What we found with our dealers is they were kind of staying home. They weren't out working that hard. They weren't getting a lot of calls. Consumers were basically locked within their houses. It was -- and it kept on going, on and on and on all winter. And we're doing so much in the way of investing time with the dealers and there's such an interest that the weather just pushes back a little bit. But I can see from the reports that I get from the salesmen, and I look at all the reports that come in, that there's lots of trial that's going on with all the products and that there are systems going in and I would expect a rebound and growth from this sector because it kind of just dropped off at this period of time. And considering all of the products that we have and all of the time we've spent training, it's a condition that was not normal and it was a weather-related condition as we checked and we polled with our dealers and distributors. So we expect a rebound on this.

Okay. And the show that the company went out recently to do, with the 10,000 dealers, or I don't know how many showed up to the actual show. But do you have any information as to how that -- how those contracts are being signed? Is it still -- are they signing or are they still kind of checking it out or what's the response so far?

Well the show was in Las Vegas a couple of weeks ago and we showed our Connected Home products and we also, off the show floor, we also had a big room where we had a presentation to the dealers. These are not consumers but these are actual alarm dealers that want to know about the Connected Home, this new technology, want to know how they can get more recurring revenue and build up on their customer -- existing customer base, plus new customers. This new technology, which seems to be very popular now that smartphones have become everywhere, ubiquitous. So what happened was, we had put 200 chairs in this room and we had done marketing, we had taken an ad out in the daily newspaper that goes around the show and it wound up that we had standing room only at the show. It was just an overwhelming response. At that show, we showed the technology and put it through its paces. We also had a couple of magazine people, Connected Home related, telling us stories about Connected Home in the future, the Internet of Things. And it was very, very interesting. It went on for about an hour, maybe 1.5 hours, if I remember correctly. And everybody was very interested in what we were doing. Plus we announced that we're going to have a dealer association that we're putting together, which will be special decals, literature, training and a program if they want to join this association that we're putting together. And we've signed up many, many dealers to this and we expect to continue to do this. So there's a lot of interest and demand. And we're in the first inning of the Connected Home introduction to dealers. It's a new concept but it's their lifeblood. It's recurring revenue and we get recurring revenue from it. So we'll be selling a lot of product and we'll get recurring revenue. [indiscernible] part of the show.

Good. As far as those 10,000 independent dealers are concerned, can you describe how much competition there is that you're encountering to get into that market? I mean, obviously, ADT and Comcast, I mean, they've got their own thing going. But just in the independent segment, who are you competing against? And how do you compare against that?

Well, the -- it's a very fragmented business. The dealers have -- some dealers have 1 truck and some dealers have 50 trucks. The national account is ADT. We supply some products to ADT. And we have a solution that no other competitors have. It's got the widest ranging, most features, longest transmission range within a premise and the nicest graphics. For the consumer, it's easy to use. So we don't see it as a major competition but they are in that field. We also have the greatest live video on smartphones and we have many national superregional accounts that are using that and now we're bringing them into the Connected Home area. As we make recurring revenue as they subscribe to all these functions. So that was very exciting. And the other exciting thing at the show was also that we showed our school solutions, LocDown solutions for K through 12, universities. And as we talked about in this quarter, the industrial business was very, very strong. It had great margins and we expect it to continue that way and just keep getting stronger and stronger. So we're firing on both chambers, both the Connected Home to expand out the dealers and get recurring revenue for them and us, and also the high-margin products of Continental, Marks and Alarm Lock. So we have eggs in a couple of baskets.

Good. So just last of all, I guess, you brought up the school market. Can you just kind of give us an update on how the big university contracts are shaping up? If you have a backlog there and what sort of time horizon you're looking at as far as generating revenues from that?

Well, we're getting -- we have over 100 schools and universities. We have a whole list that we've published and more and more of these facilities are jumping on board. So we would expect it to continue because we think it's only a drop in the bucket to the amount of security that the schools should have versus what they've got now. And as the administration and the security departments learn about our products, both at the International Security Conference and the American Society of Industrial Security, which is a show coming up, more and more of this will get embedded into them. They'll see our solutions and our solutions are from value to the most deluxe. And we have every facet in between. And we're excited about the margin expansion that we get on these products and it should be a strong growth driver going forward.

[Operator Instructions] The next question is from Leon Suronean [ph], a private investor.

I am going to ask a question. Without giving specific names and numbers. I cannot imagine a company this size, small compared to other people, that larger companies aren't looking at you with merger or acquisition in mind. And here, again, without specific names and numbers, my guess would be that you're inundated with proposals? That's my question.

Well, it's a very fragmented business and we thank you for being a shareholder over these many years. And we believe that we're sized correctly for our dealer base, because it's a very fragmented dealer base. The average dealer probably has 2 or 3 trucks running around and we really service them well. And now we're into the training mode of showing them how can they make more recurring revenue than just the intrusion and fire business with the Connected Home, which really is a valuable service for the consumers, to be able to watch what's going on in your home and control your lighting and heating as you get nearby. So we believe that the value of the company will continue to grow and become much more valuable in the years -- in the next few years because of the fact that we're generating all this new technology, which generates new recurring revenue for us. So whatever our value is today, the maturity is going to be over the next couple of years. And then we're going to really expect to see some very nice results from all the engineering and marketing that we've been doing in the last couple of years. So I'm glad you're with us and, I would say, just keep an eye on us. It should be very exciting going forward.

[Operator Instructions] We do have a question from the line of Gary Surodoneam [ph], a private investor.

I do have a question on retrofit programs. With a large installed base of existing hardwired systems and technology that's changed very rapidly over the years, what kind of retrofit programs are available? And how actively are you pursuing those?

Okay. We have a very exciting retrofit program, which is based on the fact that the copper dial-up lines on premises is going away. Lots of people today are moving into a premise that don't have a dial-up phone anymore. So -- or a dial-up phone is very expensive and they want to take it out and just use your cell phones. So we have a product called StarLink, which is basically a little black box, half the size of a cigar box, and in that is a little radio transceiver, which is connected and retrofits to existing alarms or can be used as a primary communicator of alarm signals. And it goes to our network operating center to the alarm company's central station. So we get a recurring revenue stream from that. There are millions and millions of homes that are starting to pull the plug on hardwire. Why should they pay the phone companies when they don't even use it anymore? I know myself, I don't get very many phone calls over the hardwire anymore. Everything comes through my cell phone. So where -- we put together a package of StarLinks, which is a StarLink 6 pack, which seems to be very exciting for the industry and it came out from the trade show, in discussions with the dealers. They said, "We love this thing. We want to make it a retrofit package." And we're doing that. And I think it's going to be a really a great shot in the arm for us because our radio is considered the best in the business. It upgrades to any of the Gs that come out. Right now, we're in 3G/4G, but you can do 5G, 6G as they come out in technology and our radios upgrade without throwing them…

My follow-up question was going to be about upgrading and also adding video and you covered that. So it's good to hear you've got those kinds of products. I know as a -- I'm a private investor but I'm also a custom luxury homebuilder in the Northeast and I've built several very significant homes that have elaborate alarm systems but they are outdated. So I'm sure there's a lot of clients out there that would look to upgrade to that latest technology without having to reinvent the entire wheel. So thanks for your input.

Send me an e-mail and we'd love to come and show you a demonstration face-to-face, and I think you'd be very impressed.

Thank you. We have no further questions in the queue at this time. I'd like to turn the floor back over to management for any closing remarks.

Thank you, everyone, for participating in today's conference call. As always, should you have any further questions, please feel free to call Hayden IR, Kevin Buchel or myself, and 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 2014 fourth quarter and full year results. Bye for now.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation.