DUOS TECHNOLOGIES GROUP, INC. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Duos Energy: Formed Duos Energy Corporation, signed a $42M asset management agreement for 850 MW of power generation assets. The company has a commercial pipeline of over 35 power opportunities, including 30 data center developers and five international opportunities.
• Edge Data Centers: Six Edge Data Centers ready for deployment, with the first installed in Texas. The pipeline for Edge Data Centers has grown significantly, and there is a partnership with Accu-Tech and FiberLight.
• Railcar Inspection Portal: Making progress with Amtrak, despite installation delays, and planning for a new portal at a chemical manufacturer. A subscription offering with Amtrak and Canadian National is generating interest.
• Organizational Changes: Chris King appointed Chief Operating Officer, Jeff Necciai leads Railcar Inspection Portal business, Doug Recker expanded role to Chief Commercial Officer, with a shared services organization supervised by COO and CFO.

Segment Performance

• Duos Energy Asset Management: Signed a two-year asset management agreement worth an estimated $42 million over the next two years to manage 850 megawatts of power generation assets. The company has significant experience in the power sector from its time with APR Energy.
• Duos Edge AI: Expanded investment with three new Edge Data Centers, totaling six now ready for deployment. The first is being installed for a Texas school district, with remaining five scheduled for deployment through Q4 2024 and Q1 2025. Commercial demand for these Edge Data Centers is considerable.
• Railcar Inspection Portal: Making steady progress with Amtrak, including ongoing installation projects and planning for a new portal at a large chemical manufacturer. A pilot subscription program with Amtrak is underway, and there is interest from large chemical producers and shippers.

Financial Highlights for Q3 2024

• Total revenue increased 112% to $3.24 million compared to $1.53 million in Q3 2023. Recurring services and consulting revenue saw an 88% QoQ increase.
• Cost of revenues increased 78% to $2.32 million, but gross margin increased 306% to $919,000.
• Operating expenses decreased 11% to $2.84 million. Net operating loss for Q3 2024 was $1.92 million, a decrease from $2.97 million in Q3 2023.

Guidance

• No formal guidance provided today, but management expects to issue guidance near the end of the year.
• Q4 is a transition period as businesses prepare for material operations in 2025, and quarterly financial results are expected to become more predictable.
• The company anticipates achieving profitability in 2025 due to the new initiatives in energy, Edge Data Centers, and Railcar Inspection Portal businesses.

Risks

• Regulatory Approval: The Duos Energy asset management agreement is subject to regulatory approval and customary closing conditions, which may take 30-60 days.
• Amtrak Delays: The Railcar Inspection Portal installation with Amtrak has faced delays beyond the company's control, impacting previous quarters.
• Competition: Competition exists in the Edge Data Center and power businesses, with potential competitors like Ubiquiti in the Edge Data Center space and large OEMs in the power sector.
• Uncertainties: Uncertainties in achieving financial projections, including the timing of revenue recognition from the $42M energy agreement and deployment of Edge Data Centers.

Question and Answer

Q: Mike Latimore from Northland Capital Markets asked about whether the assets for the energy business are the same ones from APR Energy, the nature of the $42M deal (guaranteed revenue, run rate), and data center recurring revenue.

A: Chuck Ferry confirmed the assets are the same as from APR Energy, the $42M is an estimated revenue based on a business plan with Fortress Investment Group, and the data center recurring revenue builds incrementally with deployment of Edge Data Centers.

Q: Ed Woo from Ascendiant Capital Markets inquired about competitors in Edge Data Center and power businesses.

A: Chuck Ferry stated Ubiquiti is a potential partner in Edge Data Centers (though also a competitor), and in power, competitors include large OEMs like GE, Siemens, etc., with equipment availability being a key challenge.

Q: Unidentified Analyst asked about expanding Amtrak Railcar Inspection Portal projects.

A: Chuck Ferry mentioned ongoing discussions for additional portals with Amtrak, despite installation delays due to Amtrak's busy project schedule in the Northeast Corridor.

Q: Dan Weston from West Capital Management followed up on $42M revenue calculation, pipeline in energy business, margins, Edge Data Center acceleration, Ubiquiti partnership, and rail subscription revenue.

A: Chuck Ferry explained the $42M revenue is based on operational and financial assumptions tied to asset management activities, the energy business has 35 potential opportunities, margins are pending deal closing, Edge Data Center deployment may be accelerated with hyperscaler partnerships, Ubiquiti partnership is a win-win, and rail subscription revenue is forecasted to be $2-3 million in 2025.