Good morning, ladies and gentlemen, welcome to the Gatekeeper Systems Inc. shareholder call. At this time, note that all lines are in a listen-only mode. If at any time during this call you require immediate assistance, please press star zero for the operator. Note that this call is being recorded on July 22nd, 2026. I would now like to turn the conference over to Doug Dyment. Please go ahead.
Thank you, operator. Good morning, everybody. I would like to remind everyone that our remarks today include forward-looking statements that are subject to risks and uncertainties. These statements are based on current management expectations. Actual results could differ materially from those projected. These financial statements were prepared in accordance with IFRS accounting standards as issued by International Accounting Standards Board. We may also use non-IFRS metrics like adjusted EBITDA. Please refer to our MD&A filed on SEDAR for full reconciliations. As I said, good morning, everybody. We've got an exciting jam-packed meeting here this morning. Looking forward to diving into all the details. We're going to start first by, as I hand over the meeting to Kelsey Chin, our CFO, to review the financial statements. Kelsey?
Thank you, Doug. Good morning, everyone. We filed our third quarter financial statements yesterday, which are available on SEDAR and Gatekeeper's website. I'll provide a brief review of our third quarter results and t hen Doug will provide some comments and an update. Company revenue for the three and nine months ended May 31st, 2026, was CAD 12.5 million and CAD 28.8 million, respectively. Revenue in the prior year comparable periods was CAD 7.5 million and CAD 20.7 million, representing an increase of 68% and 39%, respectively. Cost of sales for the three and nine months ended 2026 was CAD 5.9 million and CAD 15 million, respectively, compared to CAD 3.8 million and CAD 11.6 million for the same prior year comparable periods, representing an increase in direct costs of 55% and 30%, respectively.
Gross profit for the three and nine months ended 2026 was CAD 6.7 million and CAD 13.8 million, respectively, compared to CAD 3.7 million and CAD 10.5 million for the same prior year comparable periods, representing an increase in gross margin of 82% and 51%, respectively. Gross margin as a percentage of revenue for the three and nine months ended 2026 was 53% and 48%, respectively, compared to 49% and 44% for the same prior year comparable periods. Operating expenses for the three and nine months ended 2026 were CAD 4.6 million and CAD 13 million, respectively, as compared to CAD 3.7 million and CAD 10.5 million for the same prior year comparable periods, representing an increase in operating expenses of 23% and 24%, respectively.
Operating expense increase is attributable to higher sales costs, research and development costs, special project costs, and bid preparation costs relating to large transit projects the company is actively pursuing. Operating income for the three and nine months ended 2026 was CAD 2.1 million and CAD 720,000, respectively, as compared to an operating loss of CAD 60,000 and CAD 1.4 million for the same prior year comparable periods. Total comprehensive income for the three and nine months ended 2026 was CAD 1.48 million and CAD 1.49 million, respectively, compared to total comprehensive loss of CAD 442,000 and CAD 800,000 for the same prior year comparable periods.
Adjusted EBITDA for the three and nine months ended 2026 was CAD 2.4 million and CAD 1.5 million, respectively. At the end of our third quarter, we had CAD 7.2 million in cash compared to CAD 14.8 million at year-end. We had CAD 3 million in payables and accrued liabilities at the end of the second quarter, compared to CAD 10.8 million at year-end. Total liabilities of CAD 4 million at the end of the third quarter compared to CAD 12.4 million at year-end. I'll now turn it over to Doug to provide some comments.
All right. Thanks, Kelsey. Well, good morning, everybody. Really happy to be with everybody here this morning, and I'm going to provide a brief summary here of a few points that I've got, some talking points that really shine light on really the why in behind this strong quarterly performance. All of you know that we did two bought deal financings raising CAD 25 million, and we've really put that money to work. Again, some of the results are showing up in this quarter. I want to talk a little bit about three buckets that Gatekeeper has. This is really focused on this current backlog that we have and how the backlog has really evolved.
The first bucket is contracts that have been announced since September 1st and how much of those contracts have really been shipped, and a little bit of color on the background of those contracts and where they came from. We've got over CAD 70 million in bucket number one, which are contracts announced, and we've only shipped about CAD 14 million of those contracts. When you look at the breakout of what makes those contracts up, six of those contracts were really in the transit area, representing about CAD 57 million, and 16 of those projects came out of the K- 12 market, representing about CAD 15 million. That's a little bit of color on bucket number one. Bucket number two is what we consider Gatekeeper being spec'd but not announced. We got close to about $47 million in that particular bucket.
An example of a project that sat in that bucket last week and then moved into bucket number one was Monday's announcement of that CAD 19 million contract with SEPTA. Bucket number three are really bids in progress that we want to be moving into bucket number two, and then moving back into bucket number one. Bids in progress at the moment, we've got about CAD 110 million in that bucket. Obviously, in all of those buckets, we're seeing fluctuations as we continue to work on more deals. If you add up all of the buckets, bucket one, two, and three, you'll see that there's roughly around CAD 300 million in potentials. Not only deals that we've landed since September, but also spec'd and not announced, and then, of course, bids in progress.
We've really put a lot of the money that we raised, we really put it to work. That's an example of the activity that's going on in the sales funnel. Number two, I want to talk a little bit about some activity that frankly, that started late last week at TTC Toronto Transit, and that's the ASES project. We've been working with Toronto Transit now for several months to, after getting an award of a contract, for four trains for this automated streetcar enforcement project. We've gotten the technology to a point where they're happy with it, and they're starting their nine-month pilot program as of today.
For some of you that are unfamiliar with that particular project, these trains in Toronto that go up and down the streets and picking passengers up, dropping them off, when they come to a stop, it's illegal for a car to pass that train. It puts passengers at risk. They've been testing this technology now for several months, and they're going to start a project where or pilot program where they want to monitor how big a problem they've actually got. Gatekeeper, part of our process that we're going through is working with them to track and collect all of the evidence. We're not going to be issuing any citations during the pilot program, but we'll be reporting how serious a problem it is. The hope here is that there's a full deployment on all their trains.
They've got a little over 200 trains, so it's a significant potential project that, if they do move forward with full deployment, it could be quite beneficial for Gatekeeper. The other thing I want to talk about is this five-year, CAD 19 million contract that we just announced on Monday. It just goes to show that the goodwill that we've really built at SEPTA is really the result of another five-year deal that we've got. Video is very important to SEPTA and their operations. They save over CAD 20 million a year in false liability claims alone. Many of you probably are not aware of the types of vehicles. We're not just on transit buses and trains, but we're also dealing with police car video and all other general fleet vehicles. Gatekeeper's technology is on a host of different types of vehicles at SEPTA.
The next thing I want to talk about, number three, I want to talk a little bit about the balance sheet before we get into questions. Our inventory at the moment, at the end of Q3, was a little over CAD 17 million. Receivables had grown to CAD 14.5 million, payables about CAD 3 million, and cash about CAD 17.2 million, which was down from CAD 14.7 million August 21st. Working capital has grown to about CAD 37.5 million. The balance sheet is in strong shape. The buildup of inventory is really in preparation for all of the projects that are coming at us. A lot of this inventory is already paid for and ready to turn to revenue. We are in a strong situation with our balance sheet, and all of our lines of credit are not drawn on, so we've got some bandwidth there.
Any investors that think that Gatekeeper may have to go out to the market to raise more money, that couldn't be farther from the truth. We have no plans to go in the market with our stock sitting at the level that it's at, to be quite frank. We feel like we are undervalued here, and it's a good buying opportunity for investors that want to come in, especially with all the activity that's going on in the business, which is one of the reasons I wanted to touch on our sales funnel and how the buckets work here at Gatekeeper. All right, that's a little bit of information on summary on the business.
I would like to also add that while a lot of investors have their eyes set on all of the large projects that are going on in the transit market, the K- 12 business is really quite robust, and it delivered the majority of the revenue in Q3, to be quite frank. Gross margins are very healthy in the K- 12 market, and really, that's a culmination of things. We've widened our product line significantly. We're delivering more revenue per bus than really we ever have in the K- 12 market. Frankly, there's a lot of bandwidth for delivery of revenue in the transit side of things, and like I said, there was probably only around CAD 1 million in revenue delivered in the Q3 from transit.
The rest of the revenue came from K- 12, and there's a lot more room and growth in that K- 12 market. I encourage investors just to pay attention to the K- 12 market. Safety in and around school buses is an important thing, like I've said before, we're going through a paradigm shift to wireless, and that's driving connectivity to our systems or the ability to connect to our system, which allows us to offer up hosted services. A little bit of information on the recurring revenue side of things. We update our investors, at least in the MD&A and our online presentation every year. You can see if you go to the presentation, we've got about 4,000 MDCs that are delivering recurring revenue at the end of 2025 fiscal.
The reality is that in the queue at the moment, we're up to over 7,000. Now, what I mean by in the queue is that we've got approximately 5,000 in delivering recurring revenue, but there's over 7,000 that are in various areas of ready to get to recurring revenue. That's usually, we get a contract signed, we got to get the equipment installed, that takes some time, and then we got to configure the system before we actually turn the lights on and start recurring revenue. That portion of our business is really growing. Just another reminder, Gatekeeper invested in a data center, and we invested in that hardware. We can actually load up over 60,000 MDCs on the data center, and right now, like I say, we're pushing towards 7,000 here shortly.
Once we get to 10,000, our margin scales from where it's at today, which is in and around 75% gross margin, to 90%. You can see as we start loading up more and more MDCs, we don't have to invest in any hardware until we get beyond the 60,000 MDCs. Margin really starts to scale. It's a nice business model, and we're excited about our hosted service offering. With that being said, I'm going to open it up to questions. The first question I've got here is, can you talk a little bit about what drove gross margin performance in the quarter? How do you see that evolving in coming quarters?
I talked a little bit about the gross margin, but quite frankly, what's driven the gross margin has been the K- 12 market, frankly. Some of the projects in K- 12, we try to keep our margins quite healthy, and how we do that is we widen the product line to offer up more and more video-centric systems. We were able to keep gross margins pretty healthy. One of the things we do is we offer that free software application, and then we get our customers using our hosted service.
As far as coming quarters, in some situations, if we have large projects, the gross margins may slide a little bit, but when you look at how many customers we have in the K- 12 market, a lot of the deals are a little bit smaller, CAD 50,000, CAD 100,000, and margins are quite healthy for those smaller projects. We have a lot of them. When you look at the averaging out, the margins can be pretty healthy, which is where they need to be, because we have to have margins up in the area in order to show the profitability, to be able to invest that money back into the business and continue staying on top of our technology.
Next question. Has there been any changes around the timing of LIRR and Alstom timelines? LIRR at the moment has been pushed out a little bit. We're expecting to be able to get back on invoicing potentially sometime in October, so beginning of Q1, 2026, 2027. As far as Alstom timelines, we may see some revenue delivered in the 2026, 2027 fiscal, but we plan to be updating investors as we work with Alstom on the timing of those new train builds. Can you update us on your pipeline opportunities? I think I've done that.
Next question is, very healthy working capital position. Are you comfortable with the cash and available liquidity with some of the larger projects and set to ramp? Yes, we are. We've got other strategies that if we needed to finance some of these larger projects, that don't require us to go back to the market. Like I said earlier, given where our stock price is, given the current balance sheet that we have, we have no plans to go back to the market anytime soon. Now, if there's something that happens that causes some sort of material change, that could be something that sends us back. At the moment, we're quite comfortable with where we're at.
Okay, next question. Just give me a moment here. Is the TTC project included in one of the three buckets, or is it incremental? The TTC project is included in bucket number two.
All right, next question. Regarding the growth of the K- 12 revenue in this quarter, was the change weighted toward existing customers or new customers? That's a good question. I would say that, without having the information in front of us, but knowing our business, you're probably looking at a 50/50 split. Important to note that we're starting to see more of our existing customers doing refresh of their existing technology that's now aging out, right? With 3,500 customers out there and over 60,000 MDCs, some of our MDCs are getting to the point where our customers are looking at increasing the number of video cameras.
They've got to do a refresh on the MDC to make it a larger MDC and provide them with more eyes on target, right? Whether or not they want to add more cameras internally or start looking at 360 systems to protect against blind spots in and around the buses.
Next question. Thinking about the CAD 19 million SEPTA video maintenance contract, is there opportunity to do similar style size of contracts with other transportation companies? This is another good question. It's something that as we grow, we may be taking that boilerplate structure that we have at SEPTA, which has been enormously successful, and bundling it up and pushing that out to potential other customers. Just give me a moment here.
I've got a question here about some of the larger contracts that I've talked about in the past, and the answer is that, yes. Ar e those contracts still in play? Yes, those contracts are still in play. You have to keep in mind that this sales funnel is really growing. There are some larger projects, especially when you're participating in the train business. Just give me a moment here as I find the next question.
I have a question here about the potential dollar amount of TTC Toronto contract for the 200 trains. That's a little bit of a tough question to answer, frankly. I'm sure a lot of you are wondering what that could be. It really depends on how TTC structures the system. It definitely has the potential to be north of CAD 30 million. Again, it's a tough one, we'll work our way through the proof of concept here and the nine-month trial and hopefully have more information as we move forward.
Here's a question on how are you managing the increase in memory cost? Gatekeeper has the timing of our financing was quite good. Memory cost for this shortage of DRAM and NAND flash is affecting SSD costs. We have committed to a significant amount of SSDs. That's one of the reasons you see the increase in inventory. We've probably committed to more SSDs than we ever have in the company's history. You got to keep in mind that every one of our MDCs needs memory. Needs an SSD, whether it's a 1 TB SSD for most of our school bus customers, or in some cases, up to 16 TB for some of these train projects.
What we've done is we've secured enough inventory, SSDs just become part of our COGS, we then margin up our COGS to land on the gross margin that we need to operate our business. I would encourage investors to not necessarily be concerned that Gatekeeper is because the cost of storage is going up, that our margins are going down. That is not the case at all. All right. Our margins are staying healthy and so is our gross profit.
Next question. Is there any collection of risk on the CAD 14.5 million in receivable? Has any of this received after quarter end? The answer to that is no. We don't see really any risk there. The receivables have gone up. We've probably got more receivables over 90 days than we ever have. At the end of the quarter, we're about CAD 2.2 million, that's really because of one large project. I can't mention the end- user customer, it's one of the largest transportation companies in North America that is a little bit slow to pay on some of their projects but t hey do pay. They actually have turned in to be, depending on timing of revenue, they're either our largest customer or they're the second largest customer. Those receivables that we have, we're expecting a significant portion of that to come tumbling in here in Q4.
Next question. Wh at about acquisitions? To be honest with you, Gatekeeper is completely focused on our organic growth model, and you can see the results in the three buckets. That's where our focus is at the moment. If there is any potential acquisitions, then we'll assess those. At the moment, we're laser focused on our organic growth model just because there's just so much opportunity there.
Can you talk a little bit about integration with other systems companies as mentioned in your slide deck? Absolutely. We are being directed by MTA, if some of you have looked at some of the bids that have been made public, there's language in there that states that whoever wins these bids, Gatekeeper, I'm talking about Long Island Rail, I'm talking about TTC, some projects there. It states that whoever wins those projects, has to integrate with Genetec. I want to throw some numbers at you so you can put this in context.
When you look at the number of OEM dealers that Gatekeeper does business with in school bus, there's about 113 dealers in North America that provide all of the buses from, and services from Blue Bird, International Corporation, and Thomas. If you compare that number to the number of systems integrators that somebody like Genetec has, it's not even comparable. Genetec has an enormous amount of systems integrators around the world. The TAM, total addressable market for Gatekeeper, once we get integrated with a Genetec, and we feel that we're going to probably be integrated with them for our Long Island Rail project, likely in and around Q2 or Q3 of 2026, 2027 fiscal. We'll have a unique product offering there, our plan will be to leverage that and start building relationships with all of their systems integrators around the world.
That's an example of how we can increase our total addressable market. When you think about this, Genetec is one of the largest, if not the largest when it comes to command centers and city surveillance and access control, Johnson Controls is one of their systems integrators. They're the company that is a system integrator at MTA. We see opportunity there with that large systems integrator. Integration for Gatekeeper has an enormous opportunity for us. We're laser focused on that, and I couldn't be more excited about the opportunity, to be frank with you.
Here's a question on board composition. I believe the charter allows for more members. It seems the current directors outside Hamish have been with the company for some time. Do you anticipate any future additions here or areas of strength that can be added to the board? General thoughts. Yeah, there's the potential for that. We've got a tight board of directors that have industry expertise in transit, K- 12. Hamish brings some nice experience from the general security industry. His experience with Motorola is very good for us. If we're going to be adding board members, we'll be looking for specific subject matter experts to help us. We're focused on attracting outstanding people to this company. We are in a growth mode and there's definitely some seats to fill to strengthen the bench and really help us to drive revenue.
Any update on Hitachi and any partnership as for Alstom? Many of you are aware that there was a train deal won by Hitachi at SEPTA. Gatekeeper is spec'd on there. Hitachi, as at the moment, hasn't named their subcontractor for the communications system. I believe they're down to two companies. Both these companies are in communication with Gatekeeper, we think it's only a matter of time here before we're under contract with whoever Hitachi names as their subcomponent manufacturer for the communication system. We're quite excited about that. That particular project sits in bucket number two at the moment.
I'm getting some questions on the L&T Technology Services to equip Etihad Rail. That project has gone a little bit quiet, to be honest with you, largely due to a couple of reasons. Number one, the unrest that's been going on, obviously, in the Middle East and whatnot. Secondly, they're still working on their system configuration. These types of projects can take quite some time. I'll use Lane Transit as an example. We issued a press release over a year ago with Lane. They went through so many engineering change orders that it really delayed the project. That would be an example of one of the reasons that transit missed their number in Q3.
Having said that, we expect that all of Lane is going to be invoiced in Q4. It's just kind of a timing. Some of these transit projects, unlike most of our business in K- 12, they just take time. It's just kind of the nature of the business.
I'm getting some questions on FRA mandate deadline. We're seeing some of the transit agencies put a request for extension. We're also seeing some of the agencies accelerate their plan. SEPTA has awarded a contract for FRA requirement, which by the way, for all of you that are doing research on Gatekeeper spec and where we spec, I think some of you do a really good job. Sometimes you'll miss things. For instance, the SEPTA FRA contract that was awarded to a company, not Gatekeeper, that's our spec.
The spec reads, it's Gatekeeper, no substitutes. That's different than Gatekeeper or equal. We are pretty darn confident that that'll be our contract because it's our spec, even though one of our suppliers has, or one of our, I suppose, partners who's a DBA, went in pretty skinny on price and SEPTA has awarded to him. I believe it's going to board meeting for approval in July here. I wouldn't be too concerned, at least at the moment, that Gatekeeper hasn't won that project.
We continue to push our FRA mandate to all of our transit agencies. By the way, I'm going to talk a little bit about the activity going on in the sales and marketing department. We're going to do 75 conferences this year, a lot of those are transit. We've got a lot of school bus, a lot of transit. We have really invested in all of our go-to-market, we want to get our brand exposed out there as best we can. There's a lot of activity going on in behind the scenes to drive the numbers inside of those three buckets that I talked about at the front end of the meeting. We're getting to the point. We've got about three more minutes. I'll try to answer as many more questions as I can.
I got a question here. Would you consider up-listing to Nasdaq? That's something that we're getting a lot of interest in from the U.S. Frankly, at the moment, the cost of going to Nasdaq is substantial. My concern with trying to reach to Nasdaq too early is the cost can be enormous for companies like Gatekeeper. Frankly, there's a graveyard of companies that have reached too early and they've just had their market cap killed because of increased costs and just reaching too early and not being ready. At some point in time, we may consider a U.S. listing, at the moment, we're keeping our costs down. We're still in a venture exchange, frankly, we have a lot of investors in the U.S. that have taken a position in us, which is really nice to see.
Okay, everybody. It'll be interesting to see how the market reacts to this quarter and all the potential. Really appreciate everybody's support and I'm going to adjourn the meeting here and turn it over to the operator. Thank you so much for all your support and participating in our Q3 earnings call.
Ladies and gentlemen, this concludes Gatekeeper Systems Inc.'s annual general meeting. We thank you for participating and ask that you please disconnect your line.