A 2024 Wolf Pick at 43.5 cents to a seven bagger at $3.14 last October only to retreat to lows of $1.06 just five months later. Since then GSI has been a pretty good swing trade moving between $1.10 and $1.60 on three separate occassions.
Unfortunately (for me), I think I made more money swing trading Gatekeeper recently than I did on the original pick as I exited the stock prior to their tremendous news flow in the middle of last year.
The news flow has been great for the company over the past year but the same cannot be said for their financial performance. In 2023 Gatekeeper delivered 10% net profit margin on $28M in revenue. In 2024 that slipped to 5%, and last year they lost $3.1M in net income on declining revenue.
I did not review Gatekeeper’s Q2 with my last review coming in January after their Q1 results. Those results were rather horrific with their worst top line performance since Q1 of 2023, poor margin, increased operational costs, a $1M net loss and a whopping $9M of operational cash burn. That review received a downgrade all the way down to 2.5 stars.
Most investors knew the top line would eventually come around with the plethora of new contracts announced last year and thus far into 2026. Recently, in my July What’s Wolf Watching article for paid subscribers, I called out a $1.10 - $1.18 Buy Zone and had the following to say:
Astute investors had a brief opportunity last Friday when the stock dipped into that Buy Zone. After their results were announced Tuesday evening, the stock bounced 17% for a total gain of 25% if you were able to catch that Friday dip.
So where does Gatekeeper go from here. While the stock gained 17% yesterday it had trouble getting past $1.60 resistance - the fourth failed attempt to do so since February. Is it headed backwards once again, or are these results enough to start working it’s way back to set new all time highs?
Balance Sheet:
Gatekeeper has an excellent current ratio of over 12 that consists of $7.2M in cash, $14.5M in accounts receivables, $17.4M worth of inventory and $2.3M in prepaids over top of just $3.36M in current liabilities (def revenue removed) due over their next twelve months.
Their current ratio which is a better liquidity measure is not quite as impressive as just 17% of the company’s current assets are in cash, but it still exceeds their one year commitments by a factor of greater than two.
Their accounts receivable does present somewhat of a yellow flag, and the company has never been great with full disclosure when it comes to their A/R. On a YTD basis their revenue is up by 39% while their A/R is up by 83%. That could be just timing differences (late quarter revenue recognition) but there is one note in the MD&A which is troubling.
29% of their receivables are 90 days past due, and that percentage was only 15% three months ago. When nearly 1/3rd of your customer base is not only paying their bills late, but very fucking late, at best it presents cash flow problems and at worst can result in large write-offs. 29% of their A/R works out to be greater than $4.2M. Their credit manager needs to start banging some heads.
Outside of that, the balance sheet is relatively clean, and includes zero debt. In fact their only long term liability commitments are $190k in future lease obligations.
Cash Flow:
I already mentioned that they had a terrible cash flow quarter in Q1 with $9M in operational burn. They followed that up with $4.5M of OCF burn in Q2 and another $6M here in Q3 for a total of over $19.3M through the first nine months of the year.
Every working capital adjustment is going the wrong way here. Receivables, which I discussed, a $5.5M investment in inventory, and $9M in prepaid expenses and reducing their accounts payable.
Paying your bills on time while your customers are not is a terrible cash flow combination and this is responsible for $14.5M of their burn problem. While revenues are up, they are not getting sell through turnover on their inventory. In fact, it is up again from their second quarter by another $2.7M, and up 234% from this time last year.
The biggest reason their balance sheet is in such great shape is due to the $13.5M (gross) raise of capital back at the start of their fiscal year in November. That raise was also notably done at $2.10 share creating some bagholders who are currently down 26% on that cash outlay. That raise came with nearly $1M in costs, they received $230k into the treasury from options and have made minimal asset investments of $158k YTD. Overall their cash position has depleted by nearly half from the start of the year despite that large influx of cash in November.
Share Capital:
111.2M shares outstanding, 12% dilution over the past year, mainly due to the November raise with 920 options exercised YTD
3.9M options outstanding, all but 100k ITM. About 1.1M should be exercised within the next year
Minimal 5% insider ownership with small institutional participation (1.5%). Retail investors definitely control the show here
Only insider activity in the past year was the CEO selling 4M shares last September at $1.60
Income Statement:
Third quarter revenues were excellent at $12.5M, a 68% increase over the comparable period. Gross margins were fantastic as well, rising by 400 basis points to 53.1%, resulting in an 82% growth in gross profit dollars.
Operating expenses were also reasonably controlled, growing by 23% on 82% more GP dollars. All of their three main expense buckets, G&A, Selling and Marketing and R&D rose by similar amounts between 20% & 25%.
That is all going to result in a tremendous swing in their profitability. Gatekeeper also had a $600k birdie to last year in foreign exchange so their net income for Q3 came in at $2.3M, compared to a $300k loss a year ago - quite the dramatic turnaround and as a result, a Wolf Trifecta on the quarterly results.
YTD Performance:
$28.8M in revenue, an increase of 39% over their first three quarters
47.8% gross margin, 370 basis points higher than last year, delivering 51% more gross profit dollars
Converted well in operating expenses, growing by 24% giving them a double Wolf Trifecta
A total net income turn around of nearly $2M, $1.03M in net income vs a loss of $920k last year
Summary:
After six straight quarters with a net loss, Gatekeeper reversed that trend in a big way delivering over $2.3M of profitability and net income of of two cents/share.
The question going forward for them is whether or not this is a new inflection point of more regular results like this to come. The opportunity is certainly there. Given their 2025 results and the first two quarters of 2026, I’m not sure I agree with the slides title below, but the contract wins announced this year does give some indication that the top line will look solid in future quarters.
Without knowing a company’s close rate or how they manage their CRM, I don’t take a lot of stock in company’s pipeline numbers, but for what it’s worth that exceeds $300M. So in addition to the contract wins, the North American future opportunities are massive.
Given that Gatekeeper already has relationships and contracts in some of the major N.A. metropolitan areas (Toronto, NYC, Philadelphia, Atlanta), that provides them with a competitive advantage for going after other large cities bids for mass transit and school bus fleets.
When GSI first started announcing some of their large contract wins last year I did have questions on whether or not they had to pull their pants down when it came to margins. So far that doesn’t appear to be the case. Operating costs have also begun to stabilize in the $4.1 - $4.3M per quarter range. Therefore if they continue to keep pumping out $12M+ quarters, their bottom line should continue to deliver.
Looking at it from that purely bullish lens would be ignoring some of their other challenges however, and their largest one right now is the sorry state of their cash flow. Their accounts receivable and inventory numbers are the current two pain points. They need to collect better and on time and need better sell through on inventory levels. Their $21M TTM burn is unsustainable. The good news is this can turnaround rather quickly, the bad is a potential raise in two quarters if it doesn’t, and that would be managerial incompetence with a current ratio of over twelve!
So what do we think of the current $175M market cap valuation? The current fundamentals suggest they still have a lot of growing to do just to justify that number. 3.6x TTM sales, unprofitable on both the Net income and EBITDA lines and delivering a negative 4% ROE. That doesn’t exactly scream undervalued. Even if one were generous and extrapolated this record quarter to annual numbers, you would still get 3.5x TTM sales and a P/E of over 18.
Therefore I feel they still have a lot of work left to do before they can think about challenging new highs any time soon, a number that they are 50% off currently. Unfortunately I was unable to listen to yesterday’s call to see if any of my concerns were addressed and the replay is not yet available.
Regardless, this set of financials is definitely upgrade worthy. They have a four star P&L, but that has to be reduced significantly due to their cash flow issues.
3.5 stars.
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.