Duos Technologies Group, Inc.

Good afternoon. Welcome to the Duelist Technologies third quarter 2024 earnings conference call. Joining us for today's call are Duelist CEO Chuck Ferry and CFO Adrian Goldfarb. Following the remarks, we will open the call for questions. Then, before we conclude today's call, I'll provide the necessary questions regarding the forward-looking statements made by management during this call. Now, I'd like to turn the call over to Duelist CEO Chuck Ferry. Thank you. You may begin.

Welcome, everyone, and thank you for joining us. Yesterday, we issued our earnings press release and our 10Q for the third quarter. This morning, we released news concerning the signing of an agreement for our newly formed Duos Energy Corporation. And just prior to this call, we have filed an 8K covering this matter. This recent material event and the expected material impact on our financial performance in the coming years are a milestone achievement for Duos. Copies are available in the investor relations section of our website. I encourage all listeners to view the press releases, 10Q and 8K filings with the SEC to better understand some of the details we'll be discussing during today's call. We have previously discussed our strategy to diversify our business and accelerate the timeline of profitability. Today, I am pleased to discuss several recent developments that will enable the company to achieve this objective in 2025. As you know, we incorporated Duos Energy some weeks ago given the increasing demand for power driven by the data center industry. As a reminder, many members of the DUOS management team and I have significant experience in the power sector. With this, I am pleased to announce that we have 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. You may have already seen the press release, and we'll talk more about this opportunity after the financial presentation. We have expanded our investment into our DUOS Edge AI subsidiary with the addition of three new Edge data centers for a total of six now ready for immediate deployment. Operationally, the first Edge data center is being installed in support of our Texas Region 16 school district customer located in Amarillo, Texas. We have already identified the locations and customers for the remaining five Edge data centers that are scheduled for deployment through Q4 and into Q1 of next year. The commercial demand for these edge data centers, which provide co-location services to underserved areas, is considerable. We are making steady progress with our rail car inspection portal business to include ongoing installation projects with Amtrak and the planning for a new rail car inspection portal installation at a large chemical manufacturer. As I've reported earlier, we now have an important agreement and partnership in place with one of our long-term Class I railroad customers, currently the largest user of our wayside technology. The new agreement allows us to add subscribers to seven of our 13 portals, along with an eighth portal owned by a different customer. We'll discuss each line of business in more detail after the financial review, so at this time, I will turn it over to Adrian to cover our financial results.

Thanks, Chuck. With today's announcement of the Asset Management Agreement, my introductory remarks will focus on the expected impact of the recent expansions of the DUOS business. From an historical perspective, The company has excelled in producing leading-edge technology, and we will continue to invest in research and development for technologies that can enhance the analysis of moving vehicles, including trains as well as trucks and buses, and ultimately aviation assets. In the past four years, we have made investments in our delivery and operations capabilities to match the advanced nature of our technologies. We have built a team of professionals that have taken our core competencies, and paved the way for the expansion of the markets we serve, ultimately leading to the growth in revenues and soon profitability to reward our loyal shareholders. Our three divisions, while seemingly serving disparate markets, are, in fact, quite closely related. For example, the Dois Edge AI business, with its Edge Data Center concept serving rural communities, is an outgrowth of the EDCs we supply with our rail car inspection portals, where they operate in remote and often challenging environments. And the EDC business often works in areas where power can be a challenge. Hence, all three business units are expected to provide complementary benefits and further enhance the business. Before I get to the results, I would like to note that although we will not provide formal guidance today, our expectation is to issue such guidance near the end of the year. I can say that Q4 will be a transition period as the various businesses prepare for material operations in 2025, and that while some variability can be expected, we believe that our quarterly financial results will become much more predictable going forward. And with that, let me discuss Q3 and the first nine months. During the third quarter, total revenue for the quarter increased 112 percent to $3.24 million compared to $1.53 million in the third quarter of 2023. Total revenue for Q3 2024 represents an aggregate of approximately $1.69 million of technology systems revenue and more than $1.55 million in recurring services and consulting revenue, representing an 88% increase quarter over quarter in this important metric, which continues to grow. The increase in overall revenues is primarily attributed to a $1.4 million contract modification associated with our two high-speed rail car inspection portals project, which was awarded and largely recognized as revenue during Q3 2024. The increase in recurring services and consulting revenue is the result of new AI and subscription customers that were not present in the same quarter last year, as well as increases in service contract revenue due to higher service contract prices. Company also generated $505,982 in services and consulting revenue from power consulting work, which was new to this quarter. For the nine months ended 2024, total revenue decreased slightly to 5.82 million from 5.95 million in the same period last year. Total revenue for the nine months of 2024 represents an aggregate of approximately 2.22 million of technology systems revenue, and approximately $3.6 million in recurring services and consulting revenue, which is also an increase in recurring revenues of 42% comparing to the equivalent periods. Cost of revenues for Q3 2024 increased 78% to $2.32 million compared to $1.3 million for Q3 2023. The increase in cost of revenues was driven by $548,000 of amortization expenses recorded in 2024 to offset site revenue related to a non-monetary transaction for the new services and data agreement signed during the second quarter of 2024. The $505,982 in services and consulting revenue from power consulting work, which was provided at cost, further increased the cost of revenue for services and consulting, which was also not present in the corresponding period of 2023. Gross margin for Q3 2024 increased 306% to 919,000 compared to 226,000 for Q3 2023. The increase in margin was primarily due to the award of a change order associated with our two high-speed transit-focused rail car inspection portals that were substantially recognized in Q3 2024. This was offset by a $505,982 in services and consulting revenue from power consulting work, which had a one-time dilutive effect on gross margin. These same project revenues and subsequent margin impacts were absent during the third quarter of 2023. Operating expenses for Q3 2024 decreased 11% to $2.84 million compared to $3.2 million for Q3 2023. The decrease in expenses is attributed to reductions in development and administrative costs due to the completion of certain activities and the impact of previously implemented cost reductions. Stable operating expenses are expected for the remainder of 2024 while we continue to focus on further efficiencies to support anticipated revenue growth. The decrease in operating expenses is slightly offset by additional investments in sales resources for expansion of the commercial team that was made in the latter half of 2023 and in the first half of 2024. The company implemented a 5% reduction in staff in early Q3 2024. Beginning in late Q3 2024, the company allocated personnel costs, typically recorded under operating expenses, to costs of revenue associated with power consulting efforts, allowing the company to recover costs that were not otherwise and effectively providing contribution margin on part of the initial power consulting revenues. Net operating loss for Q3 2024 totaled $1.92 million compared to a net operating loss of $2.97 million for Q3 2023. Operating losses were thus more than a million dollars lower than the comparative quarter of a year ago. The decrease in loss from operations was primarily the result of high revenues recorded in the quarter related to the two high-speed rips for a passenger transit client, accompanied by a planned reduction in expenses, which resulted in an overall decrease in operating loss compared to the same quarter in 2023. Net loss for Q3 2024 totaled 1.4 million, compared to a net loss of 2.95 million for Q3 2023. The $1.5 million decrease in net loss represents a 53% reduction, which was mostly attributed to the increase in revenues as described above, a one-time gain from a fair value adjustment, and the extinguishment of warrant liabilities, as well as remaining successful in driving down operating costs. For the nine months ended 2024, net loss totaled $7.36 million, or a loss of $0.98 per share, compared to a net loss of $8.08 million, or a loss of $1.12 per share, in the same period last year. The decrease in net loss was primarily the result of planned decreases in operating expenses, as previously noted above, which offset the impact of slightly lower revenues in the equivalent period. With regard to the balance sheet, at September 30, 2024, cash and cash equivalents was approximately $646,000 compared to $2.44 million at December 31, 2023. In addition, the company had over $2.21 million in receivables and contract assets for a total of approximately $2.86 million in cash and expected short-term liquidity. Duis also has more than $1 million in inventory as of September 30, 2024, consisting primarily of long lead items for future RIP installations, that are expected to be deployed this year and 2025. My overall comment on the balance sheet is that it remains stable in anticipation of the expected growth in the business next year. Turning to the backlog, at the end of the third quarter, the company's contracts and backlog and near-term renewals and extensions are now more than $18.8 million in revenue, of which approximately at least $1.6 million is expected to be recognized during the remainder of 2024. Balance of contract backlog is comprised of multi-year service and software agreements, as well as project and consulting revenues. It should be noted that $10 million of the revenue backlog is for data access to support the new subscription business and is accounted for as a non-manager exchange that resulted from an amendment to a master material and service purchase agreement with a Class 1 railroad. The agreement gives DOIS the right to use and resell all data acquired by seven portals owned by the Class 1 railroad. The initial decrease in cash receivables is expected to be offset from revenues for data subscriptions to owners and lessors of railcar assets for the provision of mechanical and safety data, and longer-term provide an expected growing high-margin revenue stream from subscribers. DUOS anticipates an improvement in operating results to be reflected over the next 12 months as a result of the new initiatives described in this release, and the company will provide further updates as they become available. This concludes my financial commentary, and I will now pass the call back to Chuck.