A Quick Take on Gatekeeper

A growth stock at value stock valuation..

Introduction

• Gatekeeper (GKPRF) is a small Canadian video systems company that is morphing into a PaaS AI platform. The company produces video systems for schoolbuses and other public transport segments like city buses and trains, and it's using its installed base of 50K MDCs (mobile data collectors) to pipe services on a subscription basis.

• We published a primer on Gatekeeper half a year ago which discusses the company’s products, business model, and growth strategy. Here we focus on the Q4/24 and FY24 results, which were very good.

First, FY24 (ended August 31)

• Revenue +36% to $37.8M.

• OpEx +32% to $13M, Operating profit +56% to $4.2M.

• Gross profit +37% to $17.2M, maintaining a 46% margin.

• The school bus segment revenue +20% to $22.6M in revenue (60% of total)

• The transit segment grew 76% to $12.5M (33%).

• Service & recurring revenue +41% to $2.7M (7%).

• The company has installed approximately 9K Mobile Data Collectors across its network, taking the total to 57K which manages roughly 200K video devices daily.

• As of August 31, 2024, the company had $6.7M in cash, $16.7M in working capital, and no debt.

Q4/24

• Revenue +59% to $11.67M, terrific quarter.

• Gross margin -800bp to 40% on a one-time contract recognized during Q4, gross margin was up 100bp for the year to 46% despite this Q4 decline. The decline in the Q4 gross margin is a one-off.

• Operating cost +40% to $3.87M on higher R&D and S&M spending, but still below the growth of revenue

• Operating profit +5% to $776K on the one-off Q4 gross margin decline, but operating profit was up 56% for FY24.

• EPS was -$0.01 as a result of the gross margin decline and a total deferred income tax expense of $1.46M, both are one-off items.

• The impressive improvement in cash flow was interrupted in Q4, but this will be a one-off:

• FY24 operating cash flow was $4.2M. Q4 was a negative $1.9M and Q4/23 was highly positive, which explains the considerable retreat, but cash flow is still solidly in the black and the trend is rising.

Valuation

• With 99.6M shares out fully diluted the company, at CAD$0.55 per share that’s a market cap of CAD$54.8M and an EV of just 1.27x FY24 EV/S, and this is likely to fall below 1x for FY25 (which started in September 2024).

Conclusion

• Gatekeeper is a growth stock valued as a value play, with growth in its transit segment and recurring revenues particularly fast.

• The company keeps adding MDCs in school buses, transit buses, and trains, which opens the gates for a host of subscription services (see our primer), slowly improving the quality and predictability of revenues.