Gatekeeper Systems ($GSI.V) FINS Review

Q1 2025

Sadly, the writing was on the wall for this 2024 Wolf Pick. I have been reviewing Gatekeeper for three years now, the first a mediocre two stars all the way to an upgraded 3.75 for their annuals a year ago which also resulted in the annual Wolf pick selection. Exactly one year ago they put together the best profitability quarter in company history and the stock was off to the races gaining as much as 100% by April.

So that was the peak and it has been on a downwards trend for the most part since, with recent reviews downgraded to three stars as their financials have not not come close to living up to last years Q1.

I downsized my position in November and a month later exited fully, due to the upcoming risk of these financials, which I’ve been discussing ad nauseum with my subscribers, most recently as last weekend in my first “What’s Wolf Watching” article. Here is some of what I had to say then:

That turned out to be pretty prophetic, with the stock dropping to as low as 30 cents on Thursday, eventually recovering to finish at 42 cents, down 19% on the day and a cent and a half less than when they were chosen as a 2024 Wolf Pick thirteen months ago.

Was the quarter as bad as it looked and what do these financials tell us about their current valuation, and potential? As always, let’s examine the FINS for clues.

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Balance Sheet:

Gatekeeper still has a fabulous balance sheet with a current ratio of 8. That consists of $8.3M in cash, $4.8M in receivables, $5.6M worth of inventory and about $1.1M in other short term assets against only $2.45M in short term liabilities along with carrying zero debt.

Liquidity is strong with their cash position easily covering their short term commitments and they also had a heck of a collections quarter reducing their receivables by nearly $3M. If there is a negative within their balance sheet, their inventory levels jumped by nearly 20% on declining revenues.

Cash Flow:

GSI produced $1.55M in operational cash flow during Q1 compared to burning $820k in the same quarter last year but due to their receivables impacting their working capital changes I do not expect it will continue to trend as well on similar future income statement results.

They had very little to discuss in terms of investing or financing activities in the quarter. Overall they improved their cash position by over 21% in Q1. This is not where Gatekeepers problems are.

Share Capital:

Other than 100k options being exercised in the quarter, no changes to the cap table from their annual filings last month. To see what I said then, see my previous review:

Gatekeeper Systems ($GSI.V) FINS Review

Income Statement:

This is where the rubber meets the road and unfortunately Gatekeeper has been driving this bus with four flat tires for several quarters.

Revenues were off by 26% to last year or $2.6M coming in just shy of $7.3M for a very slow start out of the gate to their new 2025 fiscal year. Unfortunately, pretty much everything under the revenue line looks like a dumpster fire as well. Gross profit was 550 basis points less compared to last year at 43.3% vs 48.6%. So on 26% less business delivered 34% less gross profit dollars.

Adding to this disaster of a P&L is operational spending rose by 17.4%. What is worse is spending rose in each of their spending buckets, G&A costs were up by 5.8%, Selling and Marketing up by 26%, and R&D by 23%.

When you shit the bed as furiously as that it results in a decline of 98% in operating profit, barely breaking even at $32k against $2.12M in their Q1 of last year. Thankfully for them the Canadian dollar looks worse than Gatekeeper’s performance as they received a $360k gain in foreign exchange, $245k more than last year. This drove their net income to $363k compared to $2.39M in Q1.

Overall:

It’s really difficult to imagine a worse quarter for GSI. If you are looking for good news they have some in terms of the state of their balance sheet being cashed up to weather some stormy and lumpy revenue performance but that doesn’t make much of a bull case when you look at their current TTM valuations.

Last year around this time they were trading under a 5 P/E ratio. After this disaster of quarter that now sits at 260 on a TTM basis, and it is only that good due to foreign exchange as GSI would be unprofitable without it delivering only $250k on $35M in revenue.

Their commentary within the MD&A and press release was worded as if they didn’t even have erosion of 98% of operating income in the quarter and they have been extremely quiet on the news front as well. It’s hard to give them any respect when they’re acting like things are all sunshine and rainbows.

These guys are so far on the back burner right now, I can’t see the stove from here. Downgrade to 2.75 stars.

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Disclaimer:

My intent is for my reviews to be a bolt on to due diligence that you have already completed. I receive dozens of review requests a week, therefore my own DD may be great or none whatsoever. Unless otherwise stated or implied, my opinions are on the financial performance of the company based on their most recent filings. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements. I do not accept compensation of any kind from companies I review.

Wolf FINS Reviews are intended to be informational and are based on personal opinion. They are not intended to be financial advice, and all readers are encouraged to perform their own due diligence prior to their investment decisions, including discussions with their investment advisor.