Duos Technologies Group, Inc.

Good afternoon. Welcome to Duo Technologies' fourth quarter and full year 2020 earnings conference call. Joining us for today's call are Duo's CEO, Chuck Ferry, and CFO, Adrian Goldfarb. Following their remarks, we will open the call for your questions. Then, before we conclude today's call, I'll provide the necessary cautions regarding the forward-looking statements made by management during this call. Now, I would like to turn the call over to Duo's CEO, Chuck Ferry. Sir, please proceed.

Welcome, everyone, and thank you for joining us. Earlier today, we issued a press release announcing our financial results for the fourth quarter and full year 2020, as well as other operational highlights. A copy of the press release is available in the investor relations sections of our website. I encourage all listeners to view that release, as well as our forthcoming 10-K filing with the SEC to better understand some of the details we'll be discussing during our call. Now let's get started. As of today, I've officially been operating as CEO of Duos Technologies for just a little over six months. In this short period of time, I'm encouraged by the great work our team has accomplished, and we are pushing forward to meet the objectives of our 2021 operating plan, which I will discuss later today. Financially, we exceeded our most recent fourth quarter and 2020 guidance in conjunction with making a number of improvements across the business that we had discussed in our third quarter earnings call. I am pleased to report that good initial improvements have been made to improve our operational and technical delivery, internal communication processes, product development, cost structures, and reporting, and responsiveness to our customers, which has directly caused improved customer satisfaction, financial performance, and employee morale. With that said, we still have a lot of work to do this year to ensure we meet our 2021 operating plan. We have a lot of updates to cover today, so before I get any further, I'd like to turn the call over to our CFO, Adrian Goldfarb, who will walk us through the financial results for the quarter and the year. Adrian. Thank you, Chuck.

Before I discuss the detailed financials, I would like to state that I'm very comfortable with DUA's financial position at this time. The company now has a strong balance sheet with no debt and sufficient working capital and reserves with expected growth in the business this year. Turning to the numbers. Total revenue for the fourth quarter decreased 34% to $3.78 million, compared to $5.75 million in the equivalent quarter in 2020. The decrease in total revenue was driven by fewer systems deployed in the current year period. On a sequential basis, total revenues increased 195% as a result of a delay in receiving an order for a large project, which was initially planned for execution during the third quarter of 2020, and it was substantially completed in the fourth quarter. Revenues also increased as a result of certain clients allowing US employees to visit facilities after their COVID restrictions were relaxed, which helped sales efforts. Total revenue for the full year 2020 decreased 41% to $8.04 million from $13.64 million last year. The decrease in total revenue was driven by significant delays in expected new orders during the year as a result of the COVID-19 pandemic. The company received no cancellations of current contracts or expected orders, with order flow starting to recover beginning in the fourth quarter of 2020. Gross profit in Q4 was $1.65 million, or 44% of total revenue, which was a decrease of 48% from $3.15 million, or 55% of total revenue, for the equivalent quarter in 2019. The decrease in gross profit was the result of the decrease in total revenues previously noted. During the period, total cost of revenues decreased by 27 percent, which was driven by a decrease in technology systems expenses as a result of fewer systems deployed in the current year period. Furthermore, some additional costs were recognized as a result of the deployment of certain new technologies, although the additional costs are expected to be one time in nature. Gross profit for the full year 2020 decreased 57% to $2.79 million or 35% of total revenue from $6.48 million or 48% of total revenue last year. The decrease in gross profit was mainly the result of a slowdown in project revenues due to the delay in new orders previously noted. As a percentage, the overall gross margin also decreased as a result of some higher costs related to new products being deployed during the year and certain fixed project costs having a great effect on the lower revenues. Turning to our costs, operating expenses decreased 18% in Q4 2020 to $2.06 million from $2.52 million in the same quarterly period last year. The decrease in operating expenses was primarily driven by lower engineering costs as well as lower overall software development costs after completion of the TrueView360 platform. The company had previously reduced certain operating expenses primarily for personnel and travel as a result of the pandemic. Operating expenses for the full year of 2020 increased 6% to $9.42 million from $8.89 million last year. Excluding a one-time payment related to the retirement of the company's former CEO, expenses from continuing operations would have decreased overall by 24%. The decrease was driven by headcount reductions, lower research and development and software costs after the completion of the TrueView360 platform, as well as a decrease in sales and marketing costs. We recorded a net loss in Q4 of $426,000, or $0.12 loss per share, compared to a net income of $592,000, or $0.33 per share, in the equivalent quarter in 2019. The net loss was primarily attributable to the decrease in revenues previously noted. Net loss for the full year 2020 totaled $6.75 million or $2.03 loss per share compared to a net loss of $2.47 million or $1.39 loss per share a year ago. The greater net loss was primarily attributable to the decrease in revenues as well as the one-time charges related to the former CEO's severance, as previously noted. Let's now discuss the balance sheet. We ended the quarter with approximately $4 million in cash and cash equivalents, and we also had net receivables of $1.19 million. For the full-year period, we used $4.23 million million of cash in operations compared to 4.02 million in the same year ago period. The increase in net cash used in operations for the full year 2020 was the result of higher expenditures related to current and future project execution in anticipation of new projects. Towards the end of last month, we entered into a securities purchase agreement with two of our larger existing shareholders, who agreed to purchase a total of 4,500 shares of newly authorized Series C convertible preferred stock. Doers received net proceeds of $4.5 million from this transaction. Along with our recently approved $1.4 million PPP loan forgiveness, these actions have improved our balance sheet significantly and have prepared us for the expected growth in revenues this year and beyond. I'd now like to provide an update on our financial projections. For the fiscal year ending December 31, 2021, we expect total revenue to be approximately $18 million. As a reminder, our guidance is based on contracts and backlog and near term pending orders that are already performing or scheduled to be executed by the fourth quarter of 2021. Assuming we are able to achieve our top line guidance, We also expect our operations to achieve break-even or profitability in 2021 with an improved cash liquidity position by year-end. Although uncertainties continue in the macroeconomic climate, we believe that 2021 will yield a much stronger financial performance for revenue and profitability. Finally, I'd like to mention a few housekeeping items related to the presentation about financials. Beginning in Q1, we will be consolidating and reclassifying our revenue segments to simplify our reporting structure in line with some of the restructuring actions that we've taken recently. More specifically, we'll be moving to a two-line revenue structure divided into technology systems and licensing, and services and consulting, with related sub-segments broken out in these two areas. Having a separate line item from our traditional CapEx revenue structure, will also allow us to showcase revenues within our business that are essentially recurring in nature. We plan to grow revenues steadily within this segment over time as they provide a higher margin, more predictable opportunity for our business. Additionally, with the consolidation of our former TrueView360 subsidiary into our main business, those revenues will now be classified within technology systems and license. We will provide additional disclosures around these changes when we report our financial results for the first quarter of 2021. This completes my financial commentary. I'll now turn the call back over to Chuck to provide a further update on the business.