Gatekeeper Systems Inc.

Good morning, ladies and gentlemen. Welcome to the Gatekeeper Systems Inc. shareholder call. At this time, all phone lines are in the listen-only mode. In fact, any time during this call you require immediate assistance, please press star zero on your keypad for the operator. Note that this call is recorded on April 28, 2026. And I would like to turn the meeting over to Doug Diamond. Please go ahead, sir.

Thank you, operator. I would like to remind everyone Everyone that our remarks today include forward-looking statements that are subject to risk and uncertainties. These statements are based on current management expectations and actual results could differ materially from those projected. These financial statements were prepared in accordance with IFRS accounting standards as issued by the International Accounting Standards Board. We may also use non-IFRS metrics like adjusted EBITDA, please refer to our MDA filed on CDAR for full reconciliations. I'd like to welcome everyone to our Q2 earnings call, and at this time, I'd like to turn it over to Kelsey, our CFO, Kelsey Chin, our CFO, to provide a review and a financial statements. Kelsey?

Thank you, Doug, and good morning, everyone. We filed our second quarter financial statements yesterday, which are available on CDAR and Gatekeeper's website. I'll provide a brief review of our second quarter results, and Doug will provide some comments and an update afterwards. Company revenue for the three and six months ended February 28, 2026 was $10.4 million and $16.3 million, respectively. Revenue in the prior year comparable periods was $5.9 million and $13.2 million, representing an increase of 75% and 23%, respectively. Cost of sales for the three and six months ended 2026 was $6 million and $9.2 million, respectively, compared to $3.6 million and $7.8 million for the same prior year comparable periods, representing an increase in direct costs of 65% and 18%, respectively. Gross profit for the three months and six months ended 2026 was $4.4 million and $7.1 million, respectively. compared to $2.3 million and $5.5 million for the same prior year comparable periods, representing an increase in growth margin of 92% and 30% respectively. Growth margin as a percentage of revenue for the three and six months ended 2026 was 43% and 44% respectively, compared to 39% and 41% for the same prior year comparable periods. Operating expenses for the three and six months ended 2026 were $4.2 million and $8.5 million respectively, as compared to $3.6 million and $6.8 million for the same prior year comparable periods, representing an increase in operating expenses of 16% and 25% respectively. Operating expenses increases is attributable to higher sales costs, research and development costs, special project costs, and bid preparation costs relating to large transit projects as the company is actively pursuing. Operating income for the three and six months ended 2026 was $207,000, an operating loss of $1.36 million, respectively, as compared to operating loss of $1.34 million and $1.3 million for the same prior year comparable periods. Total comprehensive income for the three and six months ended 2026 was $789,000 and $6,400 respectively compared to total comprehensive loss of $1,359,000 for the same prior year comparable periods. Adjusted EBITDA for the three months ended 2026 was $715,000. At the end of our second quarter, we had $13.2 million in cash compared to $14.8 million at year end. We had $3.1 million in payables and accrued liabilities at the end of our second quarter compared to $10.8 million at year end, and total liabilities of $4.2 million at the end of the second quarter compared to $12.4 million at year end. I'll now turn it over to Don to provide some comments.

All right, thanks, Kelsey. Good morning, everybody.

As Kelsey said, the Q2, we had our highest ever Q2 at $10.4 million, an increase of 75% over the prior year. We announced over $50 million in new business contracts for which only $6.4 million was recorded as revenue in the six-month financial results. Important to note that $14.4 million was from our school bus market all of which had recurring revenue. We're seeing a significant increase in our K-12 market and opportunities are growing in our sales funnel. We established a data center in 2024 and our AI-assisted video analytics, including live streaming video, is well-received by our customers. We've grown to over 5,000 MDCs delivering recurring revenue with another 2,000 in the queue. And keep in mind that We typically upgrade our MDC count in our MD&A once a quarter. These numbers are actually year to date, and we're projecting conservatively that we should be around 10,000 by the end of this fiscal. More and more school districts are opting into our technology stack to execute on full fleet technology refresh and subscribing to our live view and video analytics software offerings. And during the quarter, we commenced on our largest ever project, a $27 million transit video project in New York MTA, Long Island Railroad, and we disclosed on January 20th, 2026, our anticipated revenue schedule for that project. We also continue to invest in R&D to drive new feature sets for our core verticals, as well as investing in operations, sales, and marketing. We plan to invest in business development by increasing our trade show and conference participation from 65 last year to over 75 for this fiscal year. So we're quite busy in our business development activities. and putting the capital that we raise to work. And finally, we've been working with several multinational companies to leverage our ability to bid on large transit and K-12 projects, as well as create integrated safety and security solutions that are unique and have the potential to scale distribution. So that's a little bit of a business update on the activities that are going on in Q2.

And I'd like to hand it over to the operator to engage in a Q&A session.

Thank you, sir. Ladies and gentlemen, you will now begin the Q&A session. Please enter your questions on the web using the Q&A tab. One moment for your first question.

First question, couple of questions.

Can you comment on the need for operating expenses to scale or not as Long Island Railroad and Alstom contracts started hitting the P&L? Two, will these large contracts have a significant impact on gross margin? And three, can you provide an update on your monthly subscription base? Thanks and congrats to a good quarter. So first question on comment on scaling operating expenses for Long Island Rail in Alstom. We do see some need to scale operation expenses, but typically what we're finding is that the scaling of operation expense typically happens before we actually land the contract. So it's part of the overall process to land a contract. So that's one of the reasons you start to see the G&A in some cases creep up and in some cases as well the R&D expenses will increase and that's simply because there's work that's needed to do to prepare for a contract that we know is coming but we may be going through negotiations and as part of those negotiations there's a lot of integration engineering work that needs to be done. Number two, Will these large contracts have a significant impact on gross margin? In some cases, they will as far as a gross margin number, say from 40% to 50% or 45%. What we're finding is that with the Long Island Rail, we may get aggressive with a project like that, which may drop the gross margin, but we pay close attention to the gross profit dollars It makes sense for our company, we feel, to get aggressive when we need to for these large projects and really stay laser focused on the gross profit dollars as well as looking at the importance of landing an MTA. And I can say that already we're starting to see the impact of being chosen by MTA in our general business development activity. Number three here, Can you provide an update on your monthly subscription base? I talked a little bit about it in my opening comments. For some of you new investors, when we launched our data center maybe a year, year and a half ago, we had about 300 of our MDCs the first fiscal year delivering revenue. And that's increased to now over 5,000. And like I said in my earlier comments, We've got another $2,000 in the queue, which includes our recently announced Atlanta Public Schools contract. And we're projecting that we should be at $10,000 very soon here. Okay, so that's a little bit of an update on where we are with the subscription model. And I'd also like to – one final comment there is that We invested with Equinix. We put a significant investment in the hardware that allows us to scale our gross margin as we add more of these MDCs to the data center. And as long as our package with storage stays consistent with what we're offering our customers, we should be able to load about 60,000 of these MDCs on our current hardware bundle. therefore scaling gross margins significantly as we add more MDCs. As we have to, you know, once we start going beyond 60,000, then there'll be another investment needed in, you know, in hardware. But that's our overall strategy. Invest in the hardware, own that hardware, and maintain it while using Equi-Connects to provide the infrastructure, which includes power and cooling and, you know, And that, again, allows us to scale margin as we add more MDCs to the data center.

So next question.

So, hey, Doug and Kelsey, congrats to you and the team for GSI for a fantastic quarter and what is shaping up to be a record-setting year.

Bear with me here one moment. So what is driving the growth?

I think what you're seeing that's driving the growth in the second quarter is just simply the plan that we put in place and executing on the plan. The encouraging thing for investors, I'd like to shine a light on here, is that in the past when we had a very strong second quarter where we had announced about a $9 million contract, whereas this Q2 here is an interesting one because the revenue growth is really coming from our basic meat and potatoes business. And that is really encouraging. The K-12 market is delivering strong growth, partly because of our widening product line that we had implemented several years ago, and that's increasing the revenue per bus. And then on top of that, you've got a paradigm shift to wireless, which is driving infrastructure revenue as well. And the reason for that is that the market in the K-12 is moving towards live video streaming as well as being able to look at recorded video over cellular networks. So that's one of the reasons that we're seeing the growth on the K-12 side of things.

Next question.

New transit opportunities, can you provide any color on how the pipeline new transit opportunities is shaping up? As I mentioned in the comments, Gatekeeper is in the process of partnering with some significant companies that have bigger balance sheets than we do, quite frankly, and they have a more diverse product line offering. than Gatekeeper. They are looking at acting as the prime and Gatekeeper is coming in with our technology stack to integrate with their products allowing us to go after some of these larger train projects. So we're quite enthusiastic about the opportunity there and and it opens up a nice opportunity for Gatekeeper to bid on some larger projects that are north of a Long Island Rail project as far as revenue. So we're quite excited about that opportunity. As far as the general business in transit, at the moment we've got a fairly small transit group and we're following up on all of the leads that we're generating at the various transit shows and conferences and basically doing the block and tackling and the work that needs to be done to bring in those opportunities.

Next question.

There's been some mainstream news coverage of one of your competition in the school bus market installing systems for free, but then extracting huge fees from customers with questionable ticketing and ongoing technology fees. Can you address how this is impacting the school bus market and what your practices are around contracts that involve gatekeeper participating in ticketing revenue? That's a great question. The company that they're referring to is in the press and I know our investors have visibility to what is going on with some of the ticketing practices surrounding around the stop-arm camera business. Look, there are a lot of these incidents that happen every year, and that's when the school bus comes to a stop, the stop-arm is engaged, children's lives are put at risk, because of just poor driving behavior and vehicles or drivers passing the stop arm when they shouldn't. It's called a stop arm violation. So Gatekeeper is, we're certainly in that business. We've got a cloud-based application called TIMS, which stands for Traffic Infraction Management System. And we have a full product line that allows us to record the incidents and take the license plate connected to our cloud-based application, identify the vehicle owner, and issue a citation. Here's the difference between us, such as Bus Patrol and Vero Mobility. We have a strategy that, yes, we can share in the revenue, but we are focused on a certain segment of the market, and we will we will not be going and bidding after some of these what I would consider risky projects where you have to deploy an enormous amount of capital and the payback is potentially over a longer period of time. I want to remind our investors that Gatekeeper is a different type of company than say a bus patrol. We have a number of revenue channels that we have built over time. And we have to be mindful of some of these risky video enforcement contracts that, like I say, could take time to get profitable and are heavily weighted towards capital to get them off the ground. So Gatekeeper is, we're going to stay disciplined in our approach. And the person that asked this question is quite correct in that some of this negative press in and around some of these large projects that have improper ticketing going on is, you know, is certainly causing pause in the market, all right? And, you know, as it relates to the stop-farm camera business, which is really quite sad because, you know, The reality is that this technology is needed to protect kids in and around school buses, and Gatekeeper doesn't play in that type of a... We just don't behave in that way. When we're issuing citations, and at the moment it's a small part of our business, we make sure that a violation is an actual violation. So we are there to implement a system that protects the school district, protects children, and is not necessarily about a money grab. I think that's where the caller was going.

Next question. So you had mentioned the gatekeeper is

specified on larger train deals than Long Island. Are they still in the bid process or are we already specified for trains and need to wait for contracts to commence to learn more about them? I believe that this question is related to some of the work that we have going on at SEPTA. The first contract at SEPTA for a new train was won by Alstom. We've announced that contract. The second one was won by Hitachi, and by the way, Hitachi, for the information of the investors, has just acquired Clever Devices. And we are specced on that particular train line that was won by Hitachi. The third line is out for RFP, and we're specced on it, but we don't know at this point in time who the winner is going to be. We've put an enormous amount of work into that SEPTA relationship, and we are quite fortunate to have our technology stack that's specified on those train deals, which really opens up opportunity for us moving forward. In alignment with that, this win at MTA, that's just an indication of the good work that we've done at SEPTA. and now we need to block and tackle and we need to execute on those contracts and then leverage and scale into more contracts on top of those OEMs.

Next question. The company raised $13.5 million.

Give me one moment here. The company raised $13.5 million during the year.

Can you give more details about the use of these proceeds, increased capacity, working capital, and paying debt? So just a little color on the money that we raised. We did two bought deal financings. It wasn't just $13.5 million that we raised, we actually raised approximately $25 million. And the use of proceeds has been to use funds for inventory build-up for some of these larger projects. And as it turns out, there's also a threat in the industry surrounding around SSD and NAND flash and gatekeepers using some of our funds to secure inventory to protect our systems and revenue streams for the future. So certainly, as we disclosed in our use of proceeds during the financing, build up and inventory, we have paid down, the company doesn't have any debt, so we haven't paid down any debt, but we pay off our payables on an ongoing basis. And you can see, You can see by the look of the balance sheet that we're in a healthy cash position. We increased our receivables to over $10 million. We reduced our payables, and we increased our inventory. So that's one of the reasons you see a slight decrease in cash from the beginning of the period to the end of the period. So Gatekeeper is, I feel like our entire team here is good stewards of cash, and we're putting that money to work.

Next question.

So what am I most excited about about the remainder of 2026 and as we move into 2027? Great job on a fantastic Q2. What I'm most excited about is a few things. Number one, we're executing our plan that we put together many years ago and we're starting to see that coming to fruition. Sometimes these things can take longer than you think. And so definitely excited about the overall team and the execution on plan. That's number one. Number two, Gatekeeper has a fantastic business. We have a lot of existing customers in our K-12 side that because of the transition to wireless and the requirement for technology refresh, We're seeing a really nice opportunity in a business that we have been entrenched in for many years. And so that's quite exciting. And Atlantic Public Schools is just a great example of that. And by the way, that is a major win for Gatekeeper. Yes, it's a $1.2 million contract. Let's not forget that a large contract several years ago in the K-12 market would be anywhere from $50,000 to $100,000. That was a good-sized contract several years ago. That win in Atlanta is a beachhead type of an account in a metro region in Georgia that has over 10,000 buses. We are really excited about that opportunity. I'm excited about that. And then when you look at the number of customers and the ongoing revenue that we have coming in from the K-12 side of things, and then you match that with the potential large contracts that we have in transit, it's a wonderful one-two punch, right? And you are going to see some lumpy quarters because of that, because of just the size of some of these contracts. So I'm excited about the... the move in our market and the acceptance of all of our technology platforms, the whole stack, which includes the transit products, the K-12 products, and in particular, our hosted service. We expected that given the limited amount of IT resources in K-12 and being able to handle video, we expected that this investment that we made in our data center was the right move to make And we were bang on. We're seeing a transition to our data center. And I think it's only going to increase as we continue to talk to more of our devices out there as our customers invest in wireless infrastructure, which allows us to plan for more and more data services. That's our overall strategy here. The tip of the iceberg is the $29 per bus per month. That's the start. But that gives our customers, don't forget, that only gives our customers live streaming capability, ability to look at recorded video. They have an AI feature built into our health check, and then they get a little bit of storage. They get all that for $29 per bus per month. But because we can talk to the devices, we really see an opportunity in offering up in the future incident management services. The overall vision here is for Gatekeeper to be the axon of our markets. For those of you who don't know who Axon is, They manage evidence in the body camera business, and they're number one. In our business, that is relatively new. It's a big opportunity, and as more and more of our customers move to wireless, we really feel like there's opportunity for more and more recurring revenue. Our strategy is to get our system planted. Keep in mind with the With the haircut that the software industry has taken, with the erosion of approximately $1 to $2 trillion in market cap, because of the threat of AI, we feel Gatekeeper is well-positioned because of the way our product has been built. It's built with a component of hardware, software, and AI. Our goal is to have total ownership of customer by way of having a total end-to-end solution. So a hardware is an important component to accelerating to become a data company. So we feel like that's part of our moat, and I think that we're starting to see more and more interest in our type of a company. As I've said before, you know, Gatekeeper is not going to be a full SaaS model. We are going to be more of a hybrid, right, where we recognize the revenue from the systems and then we come in and we layer on our recurring revenue with the ability to scale that margin as we load up more and more of these MDCs on our data centers. So when somebody asks me what am I excited about, I'm excited about just about everything going on in this business, not to mention our employees. Our employees are jacked up every day to come to work We've got a strong engineering team. Our sales team is delivering, and our operations team is executing as well. So it's a fun place to be at Gatekeeper, and I couldn't be more excited to be leading it.

Next question.

Okay, I'm going to take one more question as a lot of these questions are starting to repeat from answers that I've already given, but there's a question here about why has the East Providence school bus stop-run agreement been delayed? The East Providence school bus program is actually on track, and yes, there's been some comments in the press about the delay, but Stop-arm camera projects take time to implement. And there's workflow issues that have to be abided to. And by the way, the so-called delays in this project are an example of how Gatekeeper behaves from an operational standpoint. Unlike our competitors, Gatekeeper wants to make sure that every project operational issue is in alignment so that it is issued under the umbrella of accuracy. And we are making sure that all the I's are dotted and the T's are crossed on this project. And it will be operational here very soon. Operator, that's all the questions I've got. I'll turn it over to you.

Thank you, sir. Ladies and gentlemen, this concludes Gatekeeper Systems Inc.'s annual general meeting. We thank you for participating, and we do ask that you please disconnect your lines and enjoy the rest of your day.