Greetings and welcome to NAPCO Security Technologies Fiscal Fourth Quarter and Full Year 2022 Earnings Results Conference Call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Patrick McKillop, Vice President of Investor Relations. Thank you. You may begin. Thank you. Good morning. I'm Patrick McKillop, Vice President of Investor Relations for NAPCO Security. Thank you for joining us for today's conference call to discuss our financial results for our fiscal fourth quarter and fiscal 2020 two-year. 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 as 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. You 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 Richard in a moment, but before I do, I just wanted to mention we are actively working on our IR schedule for this fall and hope to see you all soon. Investor outreach is crucial especially for small cap companies such as NAPCO, and I would like to thank all those folks that assist us in these conferences and marketing trips. With that out of the way, let me turn the call over to Richard Soloway, President and CEO of NAPCO Security Technologies. 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 2022 record sales of $143.6 million and record profits of $19.6 million. Recurring revenue continued to grow at a very strong rate, and the annual run rate is now approximately $54 million based on July 2022 recurring revenues. Our balance sheet remains strong with our cash balances in excess of $46 million, and we have no debt. We continue to focus on capitalizing on key industry trends, which include wireless fire and intrusion alarms, school security solutions, plus enterprise access control systems and architectural locking products. The management team here at NAPCO continues to focus on the key metrics of growth, profits, returns on equity, and controlling costs. These metrics are important to us as well as our shareholders. We continue to execute our business strategy and our interests are aligned with our shareholders as senior management at NAPCO owns approximately 21% of the equity. Before I go into greater 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 year results, and then I'll be back with more on our strategies and outlook. Kevin? Thank you, Rich, and good morning, everybody. Net sales for the quarter increased 22% to a quarterly record of $40.2 million, as compared to $35.4 million for the same period one year ago. Net sales for the fiscal year ended June 30, 2022 increased 26% to a record $143.6 million as compared to $114 million for the same period a year ago. Recurring monthly revenue continued its strong growth, increasing 33% for Q4 to $12.7 million, compared to $9.5 million for the same period last year, and increasing 36% for the fiscal year to $46 million as compared to $33.9 million last year. Our recurring service revenues now have a prospective annual run rate of approximately $54 million based on July 2022 recurring service revenues. In addition, our equipment sales in Q4 increased 18% to $30.5 million as compared to $25.9 million for Q4 last year. For fiscal 2022, equipment sales increased 22% to $97.6 million as compared to $80.1 million last year. This strong growth of our recurring revenue is primarily attributable to the continued strength of our StarLink cellular radio products, driven by increases in the commercial intrusion and fire alarm business. The increase in equipment sales for the quarter and the fiscal year 2022 were related to increases in all segments of our business. NAPCO Intrusion Products, Alarm Lock and Marks USA door locking products, and Continental Access products. Gross profit for the three months ended June 30, 2022 increased 22% to $19.2 million with a gross margin of 44% as compared to $15.7 million with a gross margin of 44% for the same period a year ago. Gross profit for the fiscal year ended June 30, 2022 increased 17% to $59.2 million with a gross margin of 41% as compared to $50.7 million with a gross margin of 45% for the same period a year ago. Gross profit for recurring revenue for the fourth quarter increased 34% to $11.1 million with a very strong 87% gross margin as compared to $8.3 million with a gross margin of 87% for the same period last year. Gross profit for recurring revenue for fiscal 2022 increased 38% to $40 million with a gross margin of 87% as compared to $29 million with a gross margin of 86% last year, a 100 basis point improvement. Gross profit for equipment sales for Q4 increased 9% to $8.1 million with a gross margin of 27% as compared to $7.5 million with a gross margin of 29% last year. The equipment gross margin of 27% was an 800 basis point improvement over the equipment margin last quarter, Q3. For fiscal 2022, gross profit decreased 12% to $19.1 million with a gross margin of 20% as compared to $21.7 million with a gross margin of 27% last year. The 800 basis point increase in equipment gross margins for the quarter as compared to the prior quarter was primarily driven by higher sales, which leads to more overhead cost absorption in our Dominican Republic manufacturing facility, as well as improved product mix, more higher margin equipment sales, and by strategic price increases which we have implemented on select products. The decrease in gross margins for equipment sales for the quarter and fiscal year as compared to last year were primarily due to the continued inflation of freight and component part costs relating to the current worldwide supply chain problems, as well as increased sales of our StarLink radios, which have lower margins but result in the more profitable recurring revenues. Research and development costs for the quarter increased 8% to $2.1 million or 5% of sales as compared to $1.9 million or 5% of sales for the same quarter a year ago. Research and development costs for fiscal year ended June 30, 2022 increased 5% to $8 million or 6% of sales as compared to $7.6 million or 7% of sales for the same period last year. The increase for the quarter and the full fiscal year was primarily due to salary increases and additional staff. The decrease in R&D as a percentage of net sales was due to the record increases in net sales. Selling general and administrative expenses for the quarter increased 24% to $8.9 million or 21% of net sales as compared to $7.2 million or 20% of sales for the same period last year. Selling general and administrative expenses for the fiscal year ended June 30, 2022 increased 31% to $32.9 million or 23% of net sales as compared to $25.2 million or 22% of net sales for the same period last year. The increase in selling general and administrative expenses for both the fourth quarter and the full fiscal year was due primarily to increased sales incentive compensation relating to the aforementioned increase in net sales, as well as increases in trade show, stock-based compensation, which occurred in Q2, and legal expenses. Operating income for the quarter increased 25% to $8.2 million, as compared to $6.6 million for the same period last year. Operating income for the full fiscal year ended June 30, 2022 increased 2% to $18.2 million, as compared to $17.9 million for the same period last year. The company's provision for income taxes for the three months ended June 30, 2022 decreased 56% to $476,000 with an effective tax rate of 6%, as compared to $1.1 million with an effective tax rate of 16% for the same period last year. For fiscal 2022, the provision for income taxes decreased 11% to $2.2 million with an effective tax rate of 10%, as compared to $2.5 million with an effective tax rate of 14% last year. The decrease in the effective tax rate for fiscal 2022 was primarily due to non-taxable income of $3.9 million, which occurred in Q2 from the extinguishment of debt. Net income for the quarter increased 36% to a fourth quarter record $7.5 million or $0.20 per diluted share, as compared to $5.5 million or $0.15 per diluted share for the same period last year. Net income for the fiscal year ended June 30, 2022 increased 27% to a record $19.6 million or $0.53 per diluted share, as compared to $15.4 million or $0.42 per diluted share in the same period last year. Adjusted EBITDA for the quarter increased 29% to a fourth quarter record $9.3 million or $0.25 per diluted share, as compared to $7.2 million or $0.20 per diluted share for the same period last year. Adjusted EBITDA for the fiscal year ended June 30, 2022 increased 13% to a record $22.6 million or $0.61 per diluted share, as compared to $20.1 million or $0.55 per diluted share in the same period last year. The EBITDA margin for the fourth quarter of fiscal 2022 was 21%, and for the full fiscal year was 16%. Moving on to the balance sheet. At June 30, 2022, the company had $46.8 million in cash equivalents, and marketable securities as compared to $40.2 million as of June 30, 2021. Working capital, defined as current assets less current liabilities, was $93.1 million at June 30, 2022, as compared with working capital of $75.4 million at June 30, 2021. The current ratio, defined as current assets divided by current liabilities, was 4.5 to 1 at June 30, 2022, and 4.7 to 1 at June 30, 2021. Cash provided by operating activities for fiscal 2022 was $8.3 million as compared to $23 million for the same period last year. This decrease was primarily due to inventories increasing in fiscal 2022 by $19.3 million, as compared to a decrease of $8.8 million in the same period a year ago. The increase in inventories is primarily the result of the continued increase in component unit costs and freight, as well as increased volume of purchases of certain components that have become difficult to source during the worldwide supply chain problems. While our inventory grew in fiscal 2022, this has also led to our strong sales growth as we continue to invest resources to maximize the production and sales of our StarLink cellular radios, which result in a highly profitable and continuous recurring revenue. CapEx for the quarter was $293 thousand versus $441 thousand in the year-ago period, and CapEx for the fiscal year 2022 was $1.482 million, $1.007 million in the year-ago period. We have no debt. That concludes my formal remarks, and I would now like to return the call back to Rich. Kevin, thank you. Our fiscal 2022 was a sales record breaker, and once again, our fourth quarter was the highest sales for any quarter in the company's history. We are pleased that we were able to beat Street consensus on revenue, equipment, gross margin, EPS, net income, and adjusted EBITDA metrics. The quarter also marked our 7th consecutive quarter of year-over-year sales growth. We look forward to surpassing the previous streak of 23 quarters that was disrupted in 2020 by COVID-19. One key area of our success continues to come from the commercial fire and intrusion alarm business. Today's news headlines are all about the continued interest rate hikes and when the U.S. might fall into a recession. I would like to remind you that our company is recession-resistant as 80% of our business is commercial, and one of our primary growth drivers, the commercial fire alarm business, is a mandatory non-discretionary item. Commercial buildings must have and maintain a fire alarm system in order to receive a certificate of occupancy. Given the high profitability and essential nature of this business, we focus on this as a key area of our resources. The recurring revenue annual run rate is now approximately $54 million as of July 2022. Our StarLink radios continue to have strong sales, and we are optimistic that we can reach our previously mentioned goal of $150 million in recurring revenue earlier than 2026. The 3G sunset at the end of calendar 2022 is fast approaching, and dealers are racing to complete commercial fire alarm upgrades. We believe that we are in a strong position to benefit from this, as well as the continued need to upgrade legacy systems from old-fashioned copper phone lines. Our StarLink radios have the widest coverage with both AT&T and Verizon service and rich feature sets, which our dealers love. There are still millions of buildings that need to be upgraded from copper or replaced an older 3G cellular radio system. The constraints of the supply chain continue to be challenging, but clearly, our strategy to temporarily sacrifice hardware gross margin by purchasing components at higher prices so that we can continue to manufacture radios, which lead to continued high margin recurring revenues for each radio installed and operating, is working. We are pleased that the equipment margins improved by 800 basis points to 27% in this quarter versus Q3, and we continue to aggressively manage supply chain issues by developing alternative supply sources and delivery methods, while also reengineering products where necessary. We believe that in the next 6-9 months, new supplier sources we are developing will begin to reinvigorate our equipment margins and bring them to even higher levels than we have generated. The backlog for the company remains at historic highs and could remain high for the remainder of 2022 due to the continued supply chain issues. We remain encouraged by the continued strength of the sell-through statistics we are seeing from several of our largest distributors. With activations for our StarLink radios remaining strong, we believe that we are taking market share from our competition based on this and customers telling us that they can't get product from the competition. Fully integrated technologies for the school security market continues to remain a top priority for NAPCO, and school security projects continue to ramp up. School administrators have started to turn their attention back to the need for security solutions as more incidents happen. Our fully integrated solutions for the school security market generate healthy margins for our business, and now more than ever, we are laser-focused on further penetration of the school security market, which is comprised of approximately 130,000 K-12, and 5,000 colleges and universities across the country. The availability of grants for schools to fund these security projects has never been better. As an example, we recently saw that Governor Mike DeWine of Ohio announced that 1,183 schools in 81 counties will receive nearly $47 million in grant funding as part of his Ohio K-12 School Safety Grant Program. Many other states continue to pass funding initiatives as well. Our strategy is to offer seamless security solutions which allow our dealers and us to generate recurring revenue streams. We are now able to generate recurring revenue from all divisions of the company with the latest product addition, AirAccess, which will generate recurring revenue from the locking and access control divisions, which has never been done before. AirAccess is the industry's first cellular-based access control system, which we believe is a billion-dollar market opportunity. The benefits of AirAccess include no need for upfront investment in expensive hardware, no need to interfere with the corporate IT networks, which can be a major problem for installers, and no on-site database backups or software updates. I think he cut out. I think our speaker disconnected. Please be patient. We'll have him back on the line momentarily. We're almost complete, so. One second. Patrick, can you ping him? Because I do not have a number for him. His number came up restricted. Yep. I'll shoot him real quick. Thank you. To the audience, we thank you for your patience and understanding. Okay, we do have our speaker back with us. We thank you for your patience and understanding. Thank you. The recurring revenue annual run rate is now approximately $54 million as of July 2022. Our StarLink radios continue to have strong sales, and we are optimistic that we can reach our previously mentioned goal of $150 million in recurring revenue earlier than 2026. The 3G sunset at the end of calendar 2022 is fast approaching, and dealers are racing to complete commercial fire alarm upgrades. We believe that we are in a strong position to benefit from this, as well as the continued need to upgrade legacy systems from old-fashioned copper phone lines. Our StarLink radios have the widest coverage with both AT&T and Verizon service and feature rich sets of of functionality that our dealers love. There are still millions of buildings that need to either upgrade from copper or replace an older 3G cellular radio. The constraints of the supply chain continue to be challenging, but clearly our strategy to temporarily sacrifice hardware gross margin by purchasing components at higher prices so that we can continue to manufacture radios, which lead to continued high margin recurring revenue for each radio installed and operating, is working well. We are pleased that the equipment margins improved by 800 basis points to 27% in this quarter versus Q3, and we continue to aggressively manage supply chain issues by developing alternative supply sources and delivery methods, while also re-engineering products where necessary. We believe that in the next 6-9 months, new supplier sources we are developing will begin to reinvigorate our equipment margins and bring them to even higher levels than what we had previously generated. The backlog for the company remains at historically high levels and could remain high for the remainder of 2022 due to the continued supply chain issues. We remain encouraged by the continued strength of the sell-through statistics we are seeing from several of our largest distributors. With activations for our StarLink radios remaining strong, we believe that we are taking market share from our competition based on this and customers telling us that they can't get product from the competition. Our fully integrated technologies for the school security market continues to remain top priority for NAPCO, and school security projects continue to ramp up. School administrators have started to turn their attention back to the need for security solutions as more incidences happen. Our fully integrated solutions for the school security generate healthy margins for our business. Now more than ever, we are laser-focused on further penetration of the school security market, which is composed of approximately 130,000 K-12, and 5,000 colleges and universities across the country. The availability of grants to schools to fund these security projects has never been better. As an example, we recently saw that Governor Mike DeWine of Ohio announce that 1,183 schools in 81 counties will receive nearly $47 million in grant funding as part of his Ohio K-12, School Safety Grant Program. Many other states continue to pass funding initiatives as well. Our strategy is to offer seamless security solutions which allow for our dealers and us to generate recurring revenue streams. We are now able to generate recurring revenue from all divisions of the company with the latest product addition, AirAccess, which will generate recurring revenue from locking and access control, which has never been done before. AirAccess is the industry's first cellular-based access control system, which we believe is a billion-dollar market opportunity. The benefits of AirAccess include no need for upfront investment in expensive hardware, no need to interfere with corporate IT networks, which can be a major problem for installers, and no on-site database backups or software updates. Our R&D team remains hard at work developing even more products for the future, which will help grow our recurring revenue business. We have experienced tremendous success over the last five years growing our recurring revenue and believe the best is yet to come. We will now begin our Q&A session portion of this call in a moment. Our fiscal 2022, despite the continued supply chain challenges, has a record-breaking successful one for sales and profitability. We have a strong balance sheet, no debt, and have made the business decision to use the cash we have to spend more on raw materials and logistics as necessary to ensure that we maintain our sales and profitability growth trends. Our seasoned management team has experience from previous supply chain disruptions, which is helping us navigate the current environment. We are now in our fiscal 2023 and believe the best is yet to come. NAPCO senior management maintains a high level of ownership in our equity, approximately 21%, and I would like to thank everyone for their support and for joining us in the exciting future we have. Our formal remarks are now concluded. We would now like to open the call for the Q&A session. Operator, please proceed. Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using computer equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from James Ricchiuti with Needham & Company. Please proceed with your question. Hi. Thank you. Question just with respect to the growth, the 18% growth that you saw in the equipment business. How much of that would you say is price-driven? Because you did benefit clearly from some price increases that you implemented. Right. We added a price increase of somewhere I really don't wanna disclose the amount, but it was on selective products. If I was gonna say how much of the 18% it contributed, I would say three or four points maybe at best. Got it. Follow-up question just with respect to the equipment business. The strength you saw in gross margins, obviously, there are puts and takes here, a high volume quarter. I'm wondering, what are you seeing in terms of, you know, potentially a leveling off of component and expediting costs? Is there any concern on your part, or should we be mindful of any impact from you being out in the market procuring components at higher prices that are obviously in your inventories as we think about gross margins on a go-forward basis? The supply chain crisis is not going away yet. Gonna probably last through the end of the calendar year, maybe into 2023. I'm not counting on it ending anytime soon. I hope it does. We've seen some improvement in logistics. Some of the freight costs have come down slightly. I haven't seen the improvements in component costs on those hard-to-get parts. That's why we continue to do everything we can to get them. I'm not counting on the Texas Instruments of the world to help us, unless I could sit around and wait until 2024, which I won't. We're making our own alternative supply arrangements. We have alternatives. Another 6-9 months, and we'll start seeing the benefit of that. That will help the margins a lot. It'll also help us be even stronger than we were before the supply chain, because now we have much higher volumes that we put through our Dominican facility. You wind up getting that overhead absorption and gross margin expansion. There is the higher inventory costs, and that will affect the margins going forward. That goes the other way. All in all, given the volume that we expect to see, given the dramatic improvement in costs that we expect to see when we have these alternative sources in place, and given that we did another price increase this past July, and we might do another one even after that, I think the margins will be much healthier in 2023, calendar 2023. Got it. Just Rich alluded to, sell-through among your larger channel partners. I wonder if you could just provide a little bit more color on that, and I'll jump back in the queue. Thank you. We have very good stats on all our key distributors, and we watch what the sell-through stats are. These are their sales to their customers. They remain very strong through the end of fiscal year, through June. They remain very strong year over year for all the divisions. Not just the NAPCO division, but for Alarm Lock and for Marks. That's, to us, a sign of the strength of the business. We could sell all we want to the distributors, but if they don't sell it, that doesn't do us any good. The fact that their sell-through stats are strong, that leads us to believe strength going forward. As Rich mentioned in his remarks, we do have a big backlog as of June 30 in the $10 million range. That backlog is something. The demand is huge. We can't keep up with it. Our Dominican factory could keep up with it, 'cause we have the ability to run $300 million out of that facility on three shifts. We can't keep up with it 'cause we just can't get enough components to keep up with the demand, although we're doing everything we can, hence the larger inventory, hence the dramatic hardware growth of 18% for the quarter and 22% for the year. Got it. Thank you. Our next question is from Jaeson Schmidt with Lake Street. Please proceed with your question. Hey, guys. Thanks for taking my questions. Just regarding the backlog number, you noted that it remains at record levels, so I assume it's kinda grown from that $10 million level you talked about last quarter? I would say Jaeson. It's a similar amount to the $10 million level that we mentioned last quarter. Then obviously, this is as of June 30. E ven though we were able to ship hardware sales of $30 million, and we started the quarter with about $10 million in backlog, we still have that $10 million. T hat gives you an idea of the kinda demand. If we were able to ship every nickel out of here, it would've been a $40 million hardware quarter, which would've been amazing. D emand is still strong for our products. We're putting very good numbers on the board, and we're doing everything we can to lower that backlog in the coming months. All the products that we make for each of the division are all in big demand by the dealers. There's a lot of need for security in commercial buildings and schools and fire alarm systems. All the products are in big demand, and we're shipping the products out as quickly as we get them from our factory. The orders just keep coming in, which is a very good thing. We spend a lot of time in engineering with redoing some of our circuitry so we can use components that we can buy. It's a wonderful thing to have an integrated engineering department in a company and an integrated manufacturing division in a company, 'cause it makes you much faster on your feet. If we can't get a particular part, we'll find another part, redo our circuitry and use the other part, and then the factory then produces with it. We're doing a lot of that now. As we talked about, the hardest parts to get are microprocessors, of which we're redeveloping all new sources of microprocessors. 6-9 months from now, those processors will be new brands, and those new brands will help us reduce our backlog so that we're shipping even more. Because as we ship more orders, we get more orders. It's the position we'd like to be in. Okay. That's helpful. I know you guys don't provide guidance, but could you just talk about how order patterns have been for these first two months of the September quarter? I don't like to talk too much about the current quarter that we're in. I will say that our first quarter, which used to be, you know, very, very low, it was the summer months, we don't have that pattern anymore. For example, school security jobs, you wouldn't see any when the kids were in school. Those patterns have changed. You could see school security orders any time of year. Nobody's waiting around even for the kids to be out of school. They can't wait. It really goes the same with other parts of the business. People are doing what they can to get their hands on product, just like we are, to get our hands on the hard-to-get components. It doesn't matter what time of year it is, the business remains strong. Okay. Perfect. Just last one from me, and I'll jump back into queue. On the SG&A line, you mentioned kind of variable comp, trade shows. Just given the strength in June, would we expect SG&A to moderate a bit here in the September quarter? We would, Jaeson. You know, a large part of the increase of the SG&A was commission-driven. With hardware sales being up 18% for the quarter, recurring revenue being up 33% for the quarter, and hardware sales being up 22% for the full year and recurring up 36% for the full year, there was a lot of rewards that went to our sales team, and rightfully so. You saw that in the Q4 numbers. That will moderate somewhat in Q1. That would be probably the biggest thing that will change. Okay. Thanks a lot, guys. Thanks, Jaeson. Take care. Our next question comes from Michael Walkley with Canaccord Genuity. Please proceed with your question. Hey, guys. Good morning. It's Daniel on for Michael. Thanks for taking my questions. Congrats on the strong results. Can you just talk about how your vendors are dealing with some of the price pressures and maybe how we should think about this impacting gross margins moving forward? Our vendors are doing all they can to keep up with the demand that we're giving them. Depends on who the vendor is. In some cases, and I mentioned Texas Instruments earlier, you know, they're doing things to help, and help will be on the way by 2024, which is not good enough for us. Other vendors, what they're doing is they're trying to shift the product to companies like us who have tremendous demand, who are essential business. We're dealing with fire in many cases. We're deemed an essential business. If they could shift the demand to us over other companies who maybe either don't have the backlog that we do or are not considered essential, then they'll shift it. We work these vendors day in and day out. I do, specifically, calling them, letting them know what our needs are. You have to be the squeaky wheel. We're still in a crisis, and we believe it's helped because we believe that we've been able to deliver product, get our hands on these hard-to-get components better than our competition. The reason for that is, one, we've been through these type of crises before. Maybe not exactly like this, but we've been through this before. We have the experience, and we're relentless in trying to get what we need. This will go on for a few, several more months, but we're not sitting back. We're developing alternatives that we can get our hands on that is better priced. Once that happens, say six months out from now, you'll see a big change in the margins. The pricing will be more normalized. Great. As a quick follow-up, could you provide us with some details on how your higher margin projects such as schools and locking are trending? Well, once the kids came back to school last September, we started to see the horrific events that we were used to when the kids were in school before that. The shootings seemed like there was one every other week. When that started, the activity for school security started to increase. We announced a few wins recently. We announced a win with Pepperdine University, who we've done five other jobs for. We announced a couple of wins, two very large school districts. Both districts have over 700 schools. Big districts, big projects. Over time, they don't buy all the equipment they need for every school all at once, but over time, they buy the equipment they need. There's a tremendous demand that I believe is gonna happen soon because the schools don't wanna wait anymore. The event in Texas, where several elementary school kids were killed, the schools don't wanna be the next one. I think that maybe for many of these schools will be the last straw. There's certainly money available. Dick mentioned in his remarks, State of Ohio, money available for the K-12. There are other states, same thing has happened. The colleges and the universities have big endowments. Money's not an issue. Getting it done is the issue. Getting to the point where the classrooms are locked from the inside, and you don't have to run into the hallway and get somebody to lock it from the outside. That's the change that's coming. We've seen a lot of activity, and we think this is a big area that will bode very well for our business in the upcoming months. Great. Thanks so much for the details. You're welcome. Our next question comes from Brian Ruttenbur with Imperial Capital. Please proceed with your question. Great. Thank you very much. First of all, on cash generation, in fiscal 2023, can you talk a little bit about what you anticipate? I assume that inventory levels won't be at, you know, you know, increasing at the level that they have historically. T hen in terms of cash generation, also talk about CapEx, about true cash to the balance sheet. Brian, we expect that inventory levels will come down. You know, they're at very high levels now. Part of the reason why they're at very high levels now, besides the fact that we're buying a lot of those hard-to-get components, which we're happy that we're doing because it leads to the recurring revenue. Besides that we're buying a lot of that, there's two other factors that are driving the inventory up. One is we're on the road of taking an alternate path to get those changed components. These alternative sources, you know, we're buying basically two sets of parts and two sets of boards. You know, we're transitioning into a new way of operating with the radios. It's almost like we're doubling our inventory level. That'll do two things. It'll help us in our cost structure going forward, but it'll help us meet the demand of the products. We don't expect that backlog to be $10 million for too much longer. You know, if that backlog drops to just a couple of million, that's a big change in inventory. Also, remember, the inventory has higher overhead costs in it as well. When we sell those products, that inventory is gonna drop. Luckily, we have the cash to do this. You know, our cash at the end of June was about $46 million. If the inventory didn't grow the way it did, it would have been $66 million. We have the strong balance sheet to do whatever it takes to keep the lines moving, to keep the radios out there moving, to keep the recurring moving. We'll do what it takes. I expect the inventory to drop. If it doesn't happen right away, but the sales remain strong and the recurring keeps going, which is what we expect to happen, then so be it. Our CapEx, we don't have any big projects. We usually spend $1 million-$2 million a year on CapEx. The only thing that would dramatically change that is when we get to the point where our building in the Dominican Republic, which could handle $300 million annual revenue on three shifts. When we outgrow that, we're gonna need a second building. We have the land, the space, and that would be a very high-class problem, have to invest another $5 million or so to put up a second building to do another $300 million. Just to clarify that point, that $300 million. Product sales Equipment sales. Is that correct? Equipment. Yeah. Perfect. Got it. Thank you. Got it. Our next question is from Raj Sharma with B. Riley. Please proceed with your question. Hi. Thank you, guys. Excellent results. I congratulate you. I just have a question. A couple of questions. Is it correct to assume that your revenues would have been higher by $10 million, you know, over a few quarters if you didn't have supply chain issues? T his rise in the inventory costs are the chief cause of the operating cash flow impact. Y ou know, these higher inventory costs, will they impact your equipment margins in fiscal 2023, or do you expect the gross margins to just kinda hang in, if not improve, you know, because of the higher equipment revenues? Okay. Raj, on the first part, if we didn't have a $10 million backlog, yes, our sales would have been higher by $10 million. We did start the quarter with a $10 million backlog also and, you know, like $10 million at the end. Any way you wanna look at it, our sales would have been higher. Typically, historically, we don't have a backlog. Our backlog is usually a few hundred thousand dollars, let's say up to $1 million at most in the norm. This was 10 times that. Yes, the sales would have been higher. Will this keep up? Hard to say. I think it will. I think a lot of this is driven by us taking market share from the competition. We haven't really talked about it on this call, but as an example, with our radio business, we do business now with a lot of big players, the ADTs of the world, and Johnson Controls, and Siemens. These are big names, and they were just getting started with them, and once they really start to roll, why wouldn't that demand keep up and then some? We have a very, very powerful offering, so we expect demand to continue. As far as the inventory and the cash flow, the inventory. Once that inventory that's higher costed because of overhead and higher pricing, once that sells, those are higher costs in our that will affect our gross margin. On the other side, we took a price increase in April. We took another one in July. We're gonna go to alternative sources that are gonna be much, much lower cost than what we've been spending now. We think in the end, when it all shakes out, the higher inventory cost, but these other changes and improvements, and a better mix also, more school projects which help the mix, all the divisions being up, which have better margins than the radios. We think when you push it all together, the overall margins will be better. Better than what they were pre-COVID days. That's our expectation. Cash flows will improve, inventories will come down, b ut again, we have the strength, we have the balance sheet to handle whatever's gonna come our way. The last time we were in a big recession, back in 2008, we had no cash and lots of debt. It's a much different picture now to handle whatever comes our way, having almost $50 million in cash and no debt. Perfect. On the school wins, were these existing customers or the new customers? Could you comment and maybe give some color on traction for AirAccess and how do you see that playing out in the next few quarters? The school wins. Pepperdine was one of them. That was probably the fifth or sixth time we've had a job through them, with them. They're a customer for life. You know, when we started with them, it started with they wanted to do the dorms, then they came back second time in the classrooms, and they came back a third time, and they wanted to do the admin offices, and they came back a fourth time. They wanted to do off-site campuses 'cause they have campuses all over the place. Now they've come back, they put up additional dorms, athletic buildings. We just keep supplying them as their needs keep coming about. The other two were somewhat new. They were big school districts in the country. We can't really talk about who they were. It's confidential, but they're big, and they have over 700 schools in the district, each one of them. Our expectation is gonna see more of this. The demand is gonna pick up, we believe. It's hard for us. We get asked this all the time. "Well, just how much is your school business? How much is it?" We can't tell because a lot of times the schools will buy directly from the integrator who will buy directly from the distributor, and we're not even involved. If it's large, we typically are involved, but a lot of times we're not. We really don't know. When we see the locking and the access business go up, 'cause it affects both of those. We know that there's a lot of activity in schools, so that's happening. As far as AirAccess, that's in the early stages. You know, it was introduced recently. We believe it takes, you know, 18 months before it's a real contributor. Right now, we're not getting any recurring revenue from the schools. That would be one area where I would expect to eventually see something. We're very encouraged. Everybody seems to be very excited about it. The locking guys and the access guys have never gotten recurring revenue before. This is gonna give it to them. We're gonna get it as well. Just that one's gonna take a little time. We don't even include whatever contribution AirAccess is gonna have. We don't include it when we project out to 2026 and say that our recurring revenue will be $150 million or sooner than 2026. We're not even counting that. We do still have high expectations for that product line. Great. Thank you. That was splendid. Thank you for the excellent color. Thank you. I'll take my questions offline. Thanks. Thanks. We have reached the end of the question and answer session. I'd now like to turn the call back over to Richard Soloway for closing comments. Thank you 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 to you all again in a few months to discuss NAPCO's fiscal Q1 2023 results. Have a wonderful day, everybody. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.