An Update on Gatekeeper

Six deals in four weeks, the company is on a roll...

• We introduced Gatekeeper in May 2024 and provided an update in January, and there is a page with videos introducing their products on the company’s website.

• Things have moved a little slower than we had hoped, but as of late, there is considerable movement with new deals and its SaaS business coming alive.

• In fact, while the stock price has gone down (until very recently):

• However, the business is thriving, although H1/25 wasn’t so good, but there have been six new deals in the space of just four weeks since early May.

• FY24 ended August 31, 2024 and the figures are in C$.

Segments

School Segment

• Gatekeeper's history is rooted in providing video and data solutions for school buses to help protect children. The Company has installed approximately 53K intelligent Mobile Data Collectors (MDCs) and over 180K video devices on school buses for more than 3,500 school district customers in North America.

• Products for this segment include Video Analytics Software, Student Protector (for stop-arm violations), Pedestrian Protector (AI for blind spot detection), Mobile Wi-Fi for student internet access, 360 Surround Vision Camera System, Interior Cameras, and Tactical Ready Kits for law enforcement.

• The US market presents significant growth opportunities with over 484K school buses transporting millions of students daily. The Company believes US federal funding from the American Rescue Plan has contributed to the growth of video technology for school bus safety.

• Gatekeeper's offerings are being embraced by school districts, including full-fleet implementations.

Transit Segment

• Gatekeeper designs, installs, and services intelligent video and data solutions for the transit industry to improve passenger safety and operational efficiencies. The Company entered the transit industry in March 2018 through an acquisition related to services for the Southeastern Pennsylvania Transportation Authority (SEPTA).

• Gatekeeper has installed approximately 4K MDCs and over 14K video devices on transit buses and trains for about 60 transit customers, with SEPTA being the largest.

• Products and solutions include AI-enabled Automated Lane Enforcement (ALE) for transit lane violations, Automated Streetcar Enforcement System (ASES) for streetcar stop violations, and Digital Video Recorders (DVRs) and Crash Hardened Memory Modules (CHMMs) for rail transit, compliant with NTSB recommendations and EN 50155 international standard.

• The Company has contracts to provide factory-installed video solutions for transit buses. Recent federal funding commitments for transit in the U.S. present continued business opportunities. Gatekeeper views SEPTA as a strategic reference customer.

Market

• The global Mobile Video Surveillance Market is projected to grow at a CAGR of 7.9% from 2024 to 2029, reaching US$3.9B by 2029. There are 484K school buses in the US.

• This growth is driven by digital transformations, advancements in camera technologies, video analytics, AI, connectivity, and increasing security concerns. The market for public transit applications is growing due to emphasis on passenger safety, security, and operational efficiency.

Business model

• Over the past several years, Gatekeeper has installed approximately 57K intelligent Mobile Data Collectors (MDCs) for customers on school buses, transit buses, and trains. These MDCs collect video, audio, GPS, and other vehicle data and transmit these wirelessly (WiFi or cellular) for further analysis.

• This installed base forms the foundation of the Company’s Platform-as-a-Service (PaaS) business model. MDCs collect vehicle data such as video, audio, GPS, and time. They are Wi-Fi or mobile-enabled, allowing wireless connectivity for applications like live video streaming and centralized analytics. The Company's PaaS platform allows customers to add new offerings such as the AI Dash Cam.

• The Company has established a data center in the US to facilitate a per-vehicle per-month subscription service for its software applications for video management and evidence. This involves wirelessly connected MDCs and remote video data management.

• The number of MDCs under contract for these monthly-recurring hosted services has increased from approximately 300 to over 3.5K during the current fiscal year.

• The Company is increasing its focus on services and solutions that are annually recurring.

• Gatekeeper also offers professional hosted data management services as a monthly recurring-revenue offering.

• Gatekeeper can earn $5K to up to $8.5K per school bus if they adopt the full PaaS solution. For trains (a new growth opportunity for the company), with earnings potentially reaching between $30K and $35K.

• Gatekeeper also has agreements with OEMs for pre-installation of video and MDC equipment with companies like Thomas, Highpoint NC, IC Bus in Tulsa, and Blue Bird in Port Valley Georgia, and recently with Coach & Equipment Bus Sales Inc.

AI and Video Analytics

• Management believes AI-based video analytics is a crucial component in vehicle video safety and security. AI solutions support reliable video evidence collection. Today's vehicle video systems are seen as mobile data collection systems capable of performing live video analytics, detection, and alerts.

• Current AI-based offerings include:

  • Student Protector: Uses video analytics to detect vehicles and record license plates of those illegally passing a school bus when the stop arm is deployed.

  • Pedestrian Protector: Uses AI to assist bus drivers with blind spot detection and alert them to nearby pedestrians and children.

  • AI Dash Cam: Uses video analytics for Driver Status Monitor (DSM) and Advanced Driver Assistance Systems (ADAS) functions, detecting and alerting on various driving events and unsafe behavior.

  • Cell Phone Detection Camera: Uses video algorithms to detect if a driver is using a mobile phone while driving.

  • Automated Lane Enforcement (ALE): Uses video analytics and AI to identify and automate video evidence capture and processing for transit lane violations.

• The increasing amount of video data collected necessitates AI tools for analysis and management. Gatekeeper's G4 Vision is a video management software suite using AI for incident management and video evidence, offering features like real-time GPS tracking, video analytics, and automated ticket processing.

• SEPTA, with its large installed base of cameras, has reported significant savings in liability claims through effective collection and management of video evidence, aided by AI.

• Gatekeeper’s AI and video analytics solutions are competitive differentiators and growth drivers.

• AI has the potential to transform mobile video systems into intelligent machine vision solutions that make decisions automatically.

Growth opportunities

• New customer wins

• Technology replacement cycle

• Upselling PaaS solutions through installed MDCs

• Expand PaaS services

• Transitioning parts of the business to a software-as-a-service model.

• Enter new segments like transport and first responders

New deals

• The company has been on a bit of a roll lately, closing multiple deals (no less than six deals since early May), but the one that stands out is a little earlier, in January 2025, when they gained a pilot deal from the Toronto Transit Commission. Given the fact that the Toronto Transit Commission is the third-largest public transit system in North America, we think that this could evolve into something MUCH more substantive.

Upselling

• The company’s installed base of 57K MDCs potentially set it up for a huge creation of recurring revenue through its PaaS services, as these pass through these MDCs.

• But this is going a little slower than we hoped, although service and recurring revenue grew 41% in FY24 to $2.7M or 7% of revenue and some 3.5K MDCs are now connected and providing PaaS services like hosting and AI video analytics.

• While PaaS adoption of existing contracts is slow, it is encouraging that adoption by new contract wins is much higher, and that 57K installed base of MDCs remains a huge source of untapped PaaS revenue.

• Some regulatory and policy tailwinds could drive adoption, like a federal mandate for recording devices on passenger trains, and federal funding from the American Rescue Plan has contributed to the growth of video technology for school bus safety.

Finances

• The graph is in CAD$

• Revenues declined in H1/25 but this was entirely due to H1/24 being inflated by a special one-time transit contract of $8.5M. Excluding that, revenue grew 18% to $13.2M.

• The revenue decline worked through gross margins, which declined 900bp to 41% in H1/25 (or 38.8% in Q2).

• Operating costs increased 13% due to higher sales costs, research and development costs, special project costs, and bid preparation costs for large transit projects.

• Inventories increased by $1.75M to $8.48M, which we believe is in advance for projects.

• The diluted loss per share was $0.01, versus a profit of $0.01 per share in H1/24.

Valuation

• FY25 revenue will roughly be C$30M with 99M shares outstanding fully diluted, at C$0.6 per share, yielding a market cap of C$59.4M and an EV of C$51M.

Conclusion

• The company had a disappointing start to the year with difficult comps, and since most revenue still isn’t recurring revenue tends to be lumpy.

• However, this is shifting. Now, 3.5K of their 57K MDCs are connected and generating subscription revenue to one or more of their PaaS services. While connecting existing MDCs to PaaS services is going slower than we expected, new deals include PaaS services, and there has been a flurry of new deals, six in the space of just the last four weeks.

• Their transit segment is growing faster, and trains are an especially lucrative market, with revenues per train a multiple of school buses.

• We are hopeful that the pilot project in Toronto will transform into a full-sized project that could even be larger than SEPTA (and contain more PaaS revenue as well).