Gatekeeper Systems Produces Record Second Quarter Revenue, Gross Profit, and Net Income

Gatekeeper Systems (CA:GSI – $0.17 & US:GKPRF – $0.12 & GER:1GK – €0.12) reported its fiscal Q2 results for the three month period ending February 29, 2020 this week. The Company recorded its 8th consecutive quarter of year-over-year revenue growth. In fact, Gatekeeper’s revenue, gross profit, and net income all reached second quarter record highs.

This may really set the tone for continued growth and a record financial performance in fiscal 2020. During the past five years, the first six months of Gatekeeper’s fiscal year has on average accounted for 33% of full year revenues. This puts the Company on pace to achieve $21 million in revenue in FY2020.

Gatekeeper’s Video Analytics software platform allows transit authorities to monitor vehicle assets and manage the increasing volume of video data.

Second Quarter 2020 Financial Highlights

Revenue grew 32% from $2,698,819 to $3,574,643 for the three months ended February 29, 2020. Gross profit grew 41% from $1,142,129 in Q2 2019 to $1,614,468 in Q2 2020. Gross margin improved 3 basis points from 42% to 45% during that time. Net income dramatically improved from a net loss of $455,525 to a net profit of $90,551.

Revenue grew 53% from $4,538,297 to $6,931,041 for the six months ended February 29, 2020. Gross profit grew 50% from $2,053,415 in H1 2019 to $3,082,481 in H1 2020 while gross margin declined 1 basis point from 45% to 44%. Net income turned from a net loss of $1,142,904 to a net profit of $90,219. Gatekeeper has recorded positive net income in three of the last four quarters with a narrow loss in Q1. Its net income for those last four quarters combines to be $856,000.

 

 Amounts in $000’s
Q1
Q2
Q3
Q4
Full Year
2017
1,365
1,314
2,275
2,653
7,606
2018
1,430
1,237
2,527
2,656
7,851
2019
1,839
2,699
4,309
4,880
13,726
2020
3,356
3,575
Gatekeeper’s revenues per quarter since fiscal year 2017. Note that the Company’s fiscal year ends August 31. (Source: Company Filings)

 

A major factor contributing to Gatekeeper’s increase to profitably has been its ability to contain costs while aggressively growing its revenue. Operating expenses were flat in Q2 and down approximately $200,000 for the first half of the year. This type of efficiency and well-managed business is what small cap investors like to see!

Operating cash flow was $178,804 for H1 2020, a dramatic improvement over the $1,571,989 outflow for H1 2019. Operating cash flow outpaced net income as the Company collected $1,388,693 in receivables for the six month period. This is offset by an increase in inventories to $2,106,646 from $1,682,175. The increase in inventory is in alignment to a point we mentioned in our previous article. Gatekeeper built up a surplus amount of inventory in preparation of the Chinese New Year. Because of doing this, it did not experience a shortage and has been able to fulfill orders despite the global supply chain disruption from COVID-19 related shutdowns. Working capital was $6,346,481 as of February 29, 2020. Given Gatekeeper’s ability to generate operating cash flows, this amount looks to be sufficient to fund its growth.

 

Three Months Ended
February 29/28
Six Months Ended
February 29/28
Amounts in $000’s
2020
2019
2020
2019
Net Sales
3,575
2,699
6,931
4,538
Cost of Goods Sold
1,960
1,557
3,849
2,485
S, G & A Expenses
1,552
1,566
3,049
3,230
Income (Loss) From Operations
63
(424)
(33)
(1,177)
Net Income (Loss)
91
(456)
90
(1,143)
Earnings Per Share
0.00
(0.00)
(0.00)
(0.01)
Selected income statement data for the quarters and six months ended February 29, 2020 and February 28, 2019. Source: Company Press Release

 

Outlook and Business Developments for the Remainder of the Year

Having sufficient inventory to fulfill orders and working capital to fund growth is imperative for the Company to take advantage of opportunities as they arise. And arise they will… The US Federal Government has committed $25 billion to transit authorities like SEPTA to “prevent, prepare for, and respond to COVID-19”.

There is a good chance that some of that spending will be earmarked to implement Smart City initiatives such as Gatekeeper’s new service offerings. The Company’s recently introduced Platform-as-a-Service (PaaS) is designed to make transportation systems intelligent. Gatekeeper is actively installing GPS-enabled and wirelessly connected devices on transit buses and trains. These devices allow for public transit vehicles to be interconnected into the ecosystem of a Smart City. This is important in times like these as Gatekeeper’s devices can be used to instantly track infected cases in a pandemic emergency.

During the COVID-19 lockdown in Philadelphia, Gatekeeper’s services have been deemed essential while digital video recorders are being installed on SEPTA trains. Gatekeeper also confirmed that there has been no material change in its contract with SEPTA to provide annually recurring services valued at approximately $2.36 million per year, nor to its contract to supply and install digital video recorders on SEPTA vehicles and trains valued at approximately $6.3 million. These figures are anticipated to be billed in this fiscal year and are part of the Company’s projected revenue of $19 million to $22 million.

Conclusion: Gatekeeper Remains a Rare Undervalued Tech Gem on the TSX Venture

GSI’s listing on the TSX Venture Exchange reacted positively to the financial report. The stock has increased to $0.17 since the day of its release. Still, that represents only a CAD$15 million market cap. Gatekeeper is trading at a 0.8x revenue multiple based on forward looking estimates of its revenue for the rest of the year. As trailing EPS is $0.01, it is trading at a 19x price to earnings multiple. Having any sort of price to earnings multiple is rare for a microcap technology stock, let alone one that is generally below the typical tech company listed on the NASDAQ.

Talk of an EPS coupled with Gatekeeper’s substantial working capital and strong operating cash flow generation leads to another important point. The Company is one of the few junior listings which has not needed to dilute in order to fund operations. Its share count has remained steady between 87 million and 89 million from fiscal 2018 to now. Gatekeeper has everything a small cap investor could possibly want in an investment: transparent financials, a straightforward and successful business plan, a solid balance sheet, and a strong leadership and management team. Smallcaps Recommendation: BUY.

Smallcaps.us Advice: BuyPrice Target: $0.69Latest Company Report (pdf)
For important disclosures, please read our disclaimer.

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