DUOS TECHNOLOGIES GROUP, INC. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Diversification Strategy: Shifted focus from sole reliance on rail technology to edge data centers and power to achieve profitability.
• Key Contracts: Closed asset management agreement with APR Energy and Fortress Investment Group, deployed 90 MW gas turbines for a utility company and 300 MW for an AI data center operator.
• Edge Data Center: Ribbon-cutting of first edge data center in Amarillo, TX; next 2 to be installed in Tampa, TX. Plan to install 15 edge data centers by end of 2025.
• Financial Improvements: Clean capitalization table with minimal dilutive conditions, raised $7.5 million via S-3 shelf registration, and expects to break even financially by end of 2024.

Segment Performance

• Railcar Inspection Portal: Total revenue for 2024 was $7.28 million, down 3% from 2023. Affected by customer-driven delays in deploying 2 high-speed transit-focused railcar inspection portals. Discussions ongoing with over 50 potential customers for subscription-based recurring revenue.
• Duos Edge AI: First edge data center commercialized in Amarillo, TX. Plan to install 15 edge data centers by end of 2025. Gross margins expected in the 70th percentile range.
• Duos Energy: Closed asset management agreement with APR Energy and Fortress Investment Group, expecting $42 million over 2 years. Deployed 390 MW of gas turbines and expects 240 MW more for summer peaking period. Revenue contribution from this segment is part of the $28M to $30M guidance for 2025.

Guidance

• Revenue: Expect consolidated revenue of $28 million to $30 million in 2025, with Q1 revenue in the range of $4 million to $5 million and consistent growth throughout the year.
• Earnings: Expect to lose money in the first half of 2025 but plan to break even and be profitable in the third and fourth quarters, ending the year with positive adjusted EBITDA (excluding noncash stock compensation).
• Funding: Plan to raise $10 million to $15 million via S-3 shelf registration to support expansion of edge data center business, aiming to acquire 9 additional edge data centers by year-end.

Risks

• Railcar Business: Traditional manual inspection process is required by regulation, labor-intensive, and prone to error; competition from companies like Wabtec, Ensco, etc.; potential for rail customers to develop their own inspection systems (e.g., patent infringement by Norfolk Southern).
• Tariffs: Potential impact on raw material costs for railcar inspection portal and edge data centers; currently, no immediate impact but monitored.

Q: How has rail safety legislation changed with the new administration?

A: Likelihood of significant rail safety regulations being passed is lower than prior to the Trump administration, but some safety regulations could still go through.

Q: Have tariffs impacted customers for edge data centers or power contracts?

A: Tariffs have not impacted yet; potential impacts on raw material costs for railcar inspection portal and edge data center (via strategic partner Acu-Tech taking measures to minimize impacts); no immediate impacts on power contracts as assets are in the US.

Q: How many data centers are operational now and expected additions?

A: 1 data center is commercialized; 2 additional in Tampa, TX are in installation; plan to add 2-3 per quarter, reaching 15 by end of 2025.

Q: Potential for winning hyperscaler deals?

A: In active discussions with 5-6 large hyperscalers; interest in both power and edge data center computing from hyperscalers like Amazon Web Services.