Sales Growth Powers Record First Quarter Financials for Gatekeeper Systems Inc.

When Gatekeeper Systems (CA: GSI – $0.10 & US: GKPRF – $0.06 & GER: 1GK – €0.06) made the decision to form a US-based subsidiary, one the of the objectives was to secure leverage to a larger overall market and establish the conduit to accelerate the growth curve. It did not take Gatekeeper Systems USA Inc. long to generate results, as new significant contract awards were tendered by Philadelphia transportation provider SEPTA, shortly thereafter. The Company is now engaged in a multi-year install program to retrofit existing passenger trains and buses operating for SEPTA, while supplying equipment for new advanced technology electric buses that have been factory ordered.

This work has immediately given a boost to Gatekeeper’s revenue that this week reported financial results for its first quarter of fiscal year 2019, ended November 30, 2018.

Gatekeeper generated revenues of $1,839,478 during the quarter, surpassing the total from Q1 2018 by an increase of 29% representing the best first quarter performance in the history of the Company. This led to a gross profit of $911,286 reported during the quarter, a gain of more than 18% over the $772,014 achieved in Q1 during the prior year. After accounting for all charges against earnings the bottom line for the quarter was a net loss of $0.01 per share.

 
Three Months Ended
November 30
Amounts in $000’s
2018
2017
Revenue
1,839
1,430
Cost of Sales
928
658
Gross Profit
911
772
Expenses
1,664
1,206
Net (Loss)
(687)
(341)
Earnings (Loss) Per Share
(0.01)
(0.00)
Most important income statement data for the quarters ended November 30, 2018 and November 30, 2017. Source: Company Filing.

The Company ended the quarter with a strong position of $5,813,146 in working capital. This is a very important measure of security for a small cap growth story, as the contracts for installation and service of equipment could put demands on investment capital. Also, sales growth may correspond with expansion in personnel and added administration expenses. The ample cash resources then provide the opportunity to pursue faster growth and reduce the threat that a funding shortage may develop.

Exciting Growth Potential in Public Transit Authority Market

The double-digit growth in Q1 was furnished in part by ongoing work to fulfill contracts with important public Transit Authorities like SEPTA. The sale and installation of monitoring equipment from these contracts is expected to continue for several years.

The Transit Authority market is emerging as an important growth channel for the Company. The benefits reported by client companies include improved security and safety for passengers, along with lower expenses related to litigation and insurance settlements. This added efficiency has established stronger relationships with Gatekeeper, leading to the potential for repeat sales.

It also enhances that expectation that additional sales breakthroughs may be achieved with new clients in other cities that will demand similar monitoring systems for their respective transportation operations.

One may expect then that the sharply improved financial performance during the first quarter may be the start of a trend through 2019 and beyond. For example, during this quarter, Jackson County Mass Transit District located in Illinois, has moved forward with a deal to install 35 high-definition Gatekeeper monitoring systems for its bus fleet.

With each new contract the Company is making inroads to demonstrate its technology advances that may be noted and considered by many other transportation operators elsewhere in the country. This should build further organic growth as more significant sales are completed from this early stage in the growth curve.

The Y724-R high-definition rail recorder for transit industry. The backside features the rail specific M12 connectors.

Client Service Profile Expanded and New Products Launched to Support Sales Growth

There is also a service component to the equipment sales which contributes to revenue growth. As part of the acquisition deal for Spector Logistics Inc to establish the US subsidiary in 2018, Gatekeeper also gained a functioning service hub and monitoring center located in Wilmington, Delaware. The advantage of a trained service team in this strategic location enables Gatekeeper to participate in direct acceptance testing along with bus manufacturing companies on behalf of Gatekeeper clients.

For example, Proterra Bus is a manufacturer of advanced electric buses and a supplier to SEPTA. As such, Proterra has committed to provide access for Gatekeeper personnel for testing of monitoring systems installed on these buses ordered by SEPTA. This relationship will also perhaps open new opportunities for sales upgrades of the technology in other contracts with Proterra in the future.

One other service relationship commenced during the quarter on behalf of SEPTA, as a Notice to Proceed was issued for wireless infrastructure equipment to be installed on 320 trains. This work will generate further revenue growth as the full order is completed through 2019.

Meanwhile, Gatekeeper has continued to make progress in other markets. During the quarter, Logan Bus Company of New York placed an initial order for 40 high-definition video monitoring systems for its school bus operations.

The Company also launched new products during Q1 that strengthen its expansion into the critical market sectors. These included a new high density crash module for train operators, and the SP25 model dual camera license plate reading system with 10-megapixel resolution for its school bus monitoring systems. Gatekeeper is actively marketing the SP25 as part of its commitment to improve safety for school bus operations.

Conclusion

Gatekeeper has made a statement by starting off the 2019 fiscal year with the best Q1 revenue reported in the history of the Company. For reference, total revenue reported for the 2018 year amounted to $7,850,933 so this Q1 result appears to put the Company well on the way to surpass that mark.

The strategic decision to expand into the United States and establish a subsidiary company has presented additional opportunities for expansion and contributed material growth to top line revenues in just the first year since the acquisition of Spector Logistics was completed. Gatekeeper remains active to investigate other potential candidates for further merger and acquisition activity in the future as a means to accelerate its growth plan.

The Transit Authority market has become a critical channel for future sales growth, as the transportation industry is now recognizing the benefits of upgraded monitoring technology developed by Gatekeeper. Of note, the sales to large transit operators may yield further contract wins. Technology improvements encourage client companies to upgrade equipment and this too may contribute to follow up orders in the future.

This was illustrated by the strong relationship with SEPTA. Subsequent sales contracts have been awarded after the original contract was issued. The achievement of new contract sales with other transportation providers is also directly related to the performance of the Company to deliver on its SEPTA contracts. Gatekeeper is aggressively working to generate further growth to follow up on its breakout quarter. Smallcaps Recommendation: BUY.

Smallcaps.us Advice: BuyPrice Target: $0.28Latest Company Report (pdf)
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