Duos Technologies Group, Inc.

Good afternoon. Welcome to Duo Technologies' fourth quarter and full year 2024 earnings conference call. Joining us for today's call are Duo CEO Chuck Ferry and CFO Adrian Goldfarb. Following their remarks, we will be opening 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 CEO Chuck Ferry. Sir, please proceed.

Thank you. Welcome, everyone, and thank you for joining us. Earlier today, we issued our earnings press release and our 10-K for 2024. Copies are available in the investor relations section of our website. I encourage all listeners to view press releases and our 10-K filing 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 to profitability. Since our last earnings call, our team has been very busy working to execute our strategy of diversification in rail technology, edge data centers, and power, and things are going very well right now. In the last three months, we have closed the asset management agreement with New APR Energy and Fortress Investment Group, where we expect to earn approximately $42 million over the next two years. Under the asset management agreement, we have assumed control of an existing contract with a utility company in Southern California utilizing 90 megawatts of gas turbines. We've also deployed an additional 300 megawatts of gas turbines in support of a large US-based AI data center operator. We're continuing with fleet readiness to support additional APR energy contracts in the negotiation phase. We also conducted a ribbon cutting ceremony to officially commercialize our first stage data center in Amarillo, Texas. Over 100 local and state officials attended the school district 16 ceremony. and it included senior leaders from Fiberlight, AccuTech, and Amazon Web Services. Our next two edge data centers will be installed in the coming months in Pampa, Texas, in cooperation with APR Energy as it works with the Pampa Energy Center on behind-the-meter power opportunities in that region. Our partnership with APR and Fortress Investment Group has significantly changed the nature of our company in just the last six months, and we will break even financially this year. Given this significant change after Adrian goes through the financials, I'll discuss each line of business in more detail to help investors understand how we are operating going forward. With that, Adrian, would you please give us a review of the financials?

Thank you, Chuck. Before I cover the specific results for the fourth quarter and full year 2024, let me take a few minutes to give my perspective on what the company has achieved in the past year, much of which is not yet reflected in the posted financial results. Shortly after stepping back into the CFO position, Chuck described to me a bold and ambitious plan for the transformation of the company. His vision, as described in May 2024, seemed far-reaching at the time, but the management team felt that it was a necessary step to give the company a path to faster growth and profitability. Some time back, the company withdrew from giving formal or even basic guidance due to the ongoing uncertainty surrounding our technology business and the segment in which we were operated, namely the rail car industry. We came to the realization that while our technology is the standard for wayside detection, as the railroaders describe it, using scanning and advanced AI processing, its adoption by the industry would likely take much longer than desired, causing ongoing losses for our business and continuous requirement for dilutive capitalization. Chuck challenged himself and the management team to take the significant assets that we had developed, including a highly capable staff and leadership team, a portfolio of intellectual property, and operational excellence, and evolve the business into other business areas which could capitalize on those strengths. Accordingly, 2024 was a transformative year that saw the creation of two new subsidiaries, Doos Edge AI and Doos Energy. and the engagement with a significant partner to build a platform for the desired revenue growth and profitability without requiring large amounts of highly diluted capital. In fact, I'm pleased to inform you that as of December 31, 2024, the Duos Technologies Group balance sheet, business backlog, and estimated pipeline are the strongest in the company's history, and that our capitalization table is very clean with just common stock or equivalents in the form of preferred stock without any coupons, ratchets, or other dilutive conditions. We no longer have any warrants and minimal other derivatives consisting of just employee stock options. To fund our working capital needs through the latter part of 2024, we instituted an at-the-market program using our S3 shelf registrations. and through careful implementation by restricting the amount of stock sold in any day, raised approximately $7.5 million through the early part of this year. This had a further benefit that, in combination with the news of our expansion and the signing of the largest contract in the company's history, has generated considerable interest in the company and its stock, such that our average trading volumes are considerably higher than historically was the case, and we expect this trend to continue in 2025 and beyond. Interest in our company comes from a wide range of investors, including both retail and institutional investors. Chuck will be giving an extensive overview of the company's expectations for the coming year and beyond, so I will restrict my remarks to the financial and anticipated outcomes from all the initiatives we are now undertaking. Let me turn now to the financial results of my related commentaries. I will present summarized information and will refer you to our earnings PR just released as well as our 10-K for in-depth disclosure and analysis. Starting with our results for the quarter and the year, total revenue for the fourth quarter decreased 4% to $1.46 million compared to $1.53 million in the fourth quarter of 2023, while total revenue for the year decreased 3% $7.28 million compared to $7.47 million in 2023. Much of the lack of growth in overall revenues for 2024 is due to ongoing customer-driven delays related to the deployment of two high-speed transit-focused rail car inspection portals. I should note that during the year, the company received partial compensation for those delays, which increased the total contract value by $1.4 million. Services and consulting revenues increased by 31% compared to 2023, driven by the addition of new AI and subscription customers, higher service contract pricing, and over $900,000 in new revenue from power consulting work. Cost of revenues for the quarter increased 47% to $1.79 million, compared to $1.22 million for Q4 2023. And for the year, the cost of revenues increased 11% to $6.81 million, up from $6.16 million in the same period of 2023. The increase in cost of revenues was driven by almost $1.6 million in amortization expenses recorded in 2024 to offset site revenue related to non-monetary transactions for the new services and data agreement signed during the second quarter of 2024. Also increasing the cost of revenues with the retention of outside consultants, further increasing the cost of revenue for services and consulting, which was also not present in the corresponding period of 2023, but prepared the company for the signing of the asset management agreement, the AMA, and the expected significance revenue increases in 2025 and beyond. Cost of revenues on technology systems decreased during the period compared to the equivalent period in 2023 in line with the decline in project revenues. The declining cost generally follows the same year-over-year trend as project revenues due to timing differences in major project work. This is primarily related to the procurement and manufacturing of transit-focused RIPs. As we are near the end of the manufacturing cycle and begin preparations for field installation starting in 2025, cost of revenues for technology systems will decrease accordingly. In contrast, during the same period in 2023, the company was still progressing through the advanced stages of procurement and manufacturing for these RIPs. Gross margin for Q4 2024 decreased 209% to a negative 330,000 compared to a positive 303,000 for Q4 2023. For the year, gross margin decreased 64% to $469,000, down from $1.31 million in the same period of 2023. As noted above, the decline in margin was primarily driven by the timing of business activity related to the two high-speed transit-focused rail car inspection ports. Operating expenses for Q4 2024 decreased 21% to 2.76 million compared to 3.48 million for Q4 2023. For the year, overall operating expenses were lowered by 10% to 11.45 million down from 12.76 million in the same period of 2023. This decrease was achieved despite a 43% increase in sales and marketing driven by continued investment in the commercial team, including the addition of professionals with extensive experience and leadership across the rail, edge data center, and power industries. General and administration costs decreased by 18% as a result of reductions in headcount and related personnel expenses, as well as reductions in consulting and legal expenses compared to 2023. Net operating loss for Q4 2024 totaled 3.09 million compared to net operating loss of 3.18 million for Q4 2023. Losses from operations for the years ended December 31, 2024, and 2023, with 10.98 and 11.45 million, respectively. The decrease in losses from operations during the year was the result of planned decreases in operating expenses, which offset the impact of lower revenues recorded in the period as a consequence of delays in going to field for the two high-speed rips for a passenger transit client and the short-term lower gross margins from the impact of the initial power industry consulting prior to the signing of the AMA. Net loss for the years ended December 31, 2024 and 2023 was $10.76 and $11.24 million, respectively. The decrease in overall net loss was primarily attributable to a decrease in operating costs. Net loss per common share was $1.39 and the $1.56 respectively for the years ended December 31, 2024, and 2023, an improvement of 17 cents per share. While 2024's results were largely flat versus 2023, I'm pleased to discuss the substantial improvement in a company's balance sheet as of 12-31-2024. We ended the year with approximately $6.27 million in cash and cash equivalents. We also have an additional $4-plus million in assets consisting of six edge data centers that are in the process of being deployed to different sites and are all expected to be cash generating within a few months. Another significant asset is the equity investment in Sawgrass APR Holdings doing business as new APR Energy. Our 5% holding in this business is currently valued at over $7 million and is expected to generate profits future years as a profits interest structure. On the liability side, the company has traditionally operated with little to no debt other than some minor financing contracts related to insurance or IT equipment. In 2024, we received $2.2 million in debt funding for our initial three EDCs, and we're able to secure that for around 10% cost of capital, which is an attractive rate for a company of our size. We also secured additional financing for further three EDCs in the form of a master capital lease with a similar cost of capital and flexible payment terms as we deploy these assets in preparation for the associated cash flows. I'm also pleased to announce that in early 2025, we have retired $1 million of this debt and expect to retire a further $1.2 million by the end of this year, keeping our leverage ratios within reasonable limits. Next, I would like to discuss our backlog and pipeline. With the signing of the Asset Management Agreement with Fortress Investment Group for the management and operations of new APR energy, initial deployment of our edge data centers, and current and expected contracts in our rail business at the end of the year, our contracts and backlog represented more than $50 million in revenue, with approximately 45% or more of that expected to be recognized in 2025. We also have a pipeline of business between Duos and APR Energy related business of more than $500 million, some of which may translate into additional contracts and backlogs for Duos. I plan to give further updates on our progress in upcoming earnings score. As discussed, I'm pleased to announce that we are reinstituting financial guidance and that due to the considerable improvements in the business in the last six months, We expect that our results will be more consistent than in previous years or, quite frankly, in the history of the company. Accordingly, here is our formal guidance for 2025. For the year, we expect to record between $28 and $30 million in revenue and consolidated revenue from our three subsidiaries. Although we do not normally give quarterly guidance, we expect that revenue for Q1 will be in the range of $4 to $5 million and then build consistently throughout the year. With respect to earnings, our initial expectation is to lose some money in the first half as we transition and build the new businesses, but plan to minimize this as much as possible by some expense reductions in our rail business to match the expected business from that second. However, I'm very pleased to report that we expect to break even and then make money in the third and fourth quarters and end the full year with positive adjusted EBITDA, the major adjustment being for non-cash stock compensation. Lastly, we expect to raise between $10 and $15 million through our S3 shelf registration to support the rapidly growing edge data center business in order to acquire an additional nine EDCs for deployment by year end, which will put us in the position of exiting 2025 with an expected $3.5 million in high margin annual recurring revenue from that business and position us or further growth in 2026 and beyond. This concludes my formal remarks, and at this point, I will turn the call back to Chuck for his commentary. Thank you, Adrian.