TOP IDEAS: With the stock up 700%, Gatekeeper Systems’ (TSXV: GSI) Artificial Intelligence (AI) and video analytics solutions for vehicle and mobile applications could scale recurring revenues.

No doubt, to date, Gatekeeper Systems has been a very rewarding small cap investment for readers of the Investorfile blog. Since we first introduced the Company as one of our Top Ideas, trading at C$0.11 (See: Gatekeeper Systems is a value buy as revenues continue to grow), the stock price soared to a high of C$1.43 earlier this year. Currently the shares are up 700% in value since Investorfile first initiated coverage.

Based in Abbotsford, BC, with operations in Bristol, PA, Gatekeeper Systems Inc. (TSXV: C$0.88) provides scalable, end-to-end, high-definition safety and security solutions for mobile applications. Core markets include school buses, transit buses and trains.

Gatekeeper integrates high-resolution video, voice and mapping for extreme mobile applications, providing customers with an effective tool to increase passenger safety, protect drivers, and manage fleet operations. The Company's products provide a 360° view inside and outside vehicles, and each system integrates high-definition video with GPS location technology for real-time vehicle location, along with time, date and telematics data. All data is recorded to a military standard digital recording system, located inside the vehicle.

Historically, the majority of the Company’s business was focused on the school bus market as a camera hardware provider outfitting school buses in North America with mobile video systems used for recording incidents inside and outside around the perimeter of the school buses. But two years ago, the Company embarked on a strategy to accelerate the expansion into mobile video maintenance and support services within the transit industry in North America and, as a result, was chosen as Southeastern Pennsylvania Transportation Authority (SEPTA) video systems supplier for new transit buses for the City of Philadelphia. Subsequently, Gatekeeper was awarded a long-term contract with SEPTA to service existing video equipment and provides certain evidence management services.

Gatekeeper’s business in its core markets, both school bus and transit, has achieved accelerated revenue growth and profitability. For the Company’s fiscal 2020 financial results, annual revenues topped C$20 million, up 48% from the prior year, while earning a net income of C$3.5 million or C$0.04 per share. Gatekeeper reported that revenues for the first quarter of fiscal 2021 were also up 48% from the prior year's quarter, and Management has said that contracted sales backlog and sales funnels remain brisk.

Revenue growth and profitability over the last two years is impressive. We note that currently about 85% of Gatekeeper’s revenues are hardware sales (mostly comprising mobile surveillance cameras and recorders). The balance is generated from servicing cameras and video equipment, which is tied to longer-term contract(s) of three to five years. The latter is revenue that is recurring.

Investorfile expects that Gatekeeper will continue to win significant contracts to supply its hardware within its core markets. However, we are of the opinion that services contracts that generate recurring revenues will become a much more important component for the Company’s overall consistent sales growth and profitability.

Here is why.

According to Gatekeeper, it has come apparent that the increasing uses of video recorded from all mobile data collections installed on school buses, transit buses and trains generates a tremendous of data, but it is becoming too complex to analyze and manage using traditional methods. Still, the data that is generated is becoming a very important asset for use in incidence investigations, which impact insurance claims, road infractions and safety. As such, Gatekeeper’s Management has stated that it is developing a strategy which could represent significant scalable recurring revenue streams to the Company by offering comprehensive hosted data management services solutions for the data and information derived from its hardware equipment and other devices collected. This would be combined with intelligent applications, such as Artificial Intelligence (AI), which analyze and interpret video as it is being recorded and automatically make decisions without human interaction. The strategy, as described by Gatekeeper, is to evolve software applications to manage discrete data input from multiple devices, which will also transition parts of the Company’s business to a Software-as-a-Service (SaaS) recurring revenue model.

Gatekeeper believes its Artificial Intelligence and video analytics solutions for vehicle and mobile applications are competitive differentiators and, as such, data management could be a major growth driver for the Company going forward.

At Investorfile, we acknowledge that Gatekeeper’s stock price has appreciated significantly since our last blog post on the Company. However, from speaking with Gatekeeper’s CEO (and major shareholder), the focus is to continue grow the Company, with the goal to become a services and hardware business in equal proportions over the next several years. That said investors should pay special attention to future product developments, partnerships and contract announcements that can scale the Company’s recurring revenue steams in the future. If Gatekeeper's recurring revenue streams continue to grow, we still see good upside potential for the stock price from its current trading levels.

The Company continues to maintain a good balance sheet.

Gatekeeper Systems currently has about 89.7 million shares outstanding.

The Company's website www.gatekeeper-systems.com

Author's share ownership disclosure: GSI – Yes

Investorfile's share price accumulation target of $0.25 for Gatekeeper Systems Inc. was initially reached on November 25, 2016.

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This article is for informational purposes only. This article is based on the author's independent analysis and judgment and does not guarantee the information's accuracy or completeness. The information contained in this article is subject to change without notice, and the author assumes no responsibility to update the information contained in this article. The information contained within this article should not be construed as offering of investment advice. Those seeking direct investment advice, should consult a qualified, registered, investment professional. This is not a direct or implied solicitation to buy or sell securities. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock.

Investorfile.com is not engaged in an investor relations agreement with Gatekeeper Systems Inc. nor has it received any compensation from Gatekeepers System Inc. the preparation or distribution of this article.

The author of this article has acquired and may trade shares of Gatekeeper Systems Inc. through open market transactions and for investment purposes only.