Duos Technologies Group, Inc.

Welcome, everyone, and thanks for joining us. Earlier today, we issued our earnings press release and our 2025 second quarter 10Q. Copies are available in the investor relations section of our website. I encourage all listeners to view the press releases and our 10Q filing to better understand some of the details we'll be discussing during today's call. Our strategy to pivot to the edge data center business is gaining momentum. We remain on plan to install 15 edge data centers in Texas this year, and our pipeline of opportunities for 2026 is growing. Now that we have properly capitalized this business through our recent raise, we have all the ingredients in place to grow this exciting new opportunity that is part of the overall data center growth story. Through our asset management agreement with APR Energy, we have installed and commercially delivered a 150 megawatt gas turbine power plant in Mexico in 35 days. Simultaneously, we have delivered additional gas turbines into a large AI data center facility here in the United States. The steady recurring revenues from the asset management agreement have stabilized our financials in a very positive way. The rail car inspection portal business has largely been flat, but the rail industry has generally acknowledged it will be used very broadly in the coming years. As you will hear from Adrian, our financial situation has much improved from this time last year, and we remain confident on the guidance we've issued for this year. Over to you Adrian for the numbers.

Thank you, Chuck. As usual, before covering the specific results for the second quarter, I will discuss the state of the company and the transformation that we've undergone in the past 15 months since I returned as Chief Financial Officer. At that time, Chuck expressed his desire to put the company on a different trajectory. He asked me and other senior leadership to work as a team to identify ways in which we might direct considerable talent that had been assembled to redirect available resources, specifically financial, operational and technical. Thus, we might put to us on the path to significant growth and profitability. During the strategic planning that has led us to where we are today, we recognize that despite the outstanding achievements we had made in developing the technology underlying the rail car inspection portal, The speed at which the rail industry would adopt our solutions and, as a small company, our ability to influence the industry seemed as if the time it might take and the financial resources needed might not be compatible with providing the returns our shareholders are expecting, and shareholders whom I should say have been extremely supportive. The management team, under Chuck's leadership, identified that we needed to diversify the business into at least two distinct businesses, where the existing personnel has the skills and talent to rapidly undertake such a transition and make it successful in a relatively short space of time. Chuck has previously discussed the thinking behind teaming up with Fortress Investment Group to pursue a multi-hundred-million-dollar purchase of gas turbines for power generation, resulting in an estimated $42 million contract for DUIS to operationally manage those assets, as well as a 5% stake in the new APR entity, which we expect to be very accretive to shareholder value in the future. The other transition, Duos Edge AI, takes our expertise in edge data centers, which are referred to as EDCs or pods, developed for the rail car inspection portal, and under the leadership of Doug Recker, a 30-year veteran of the data center space, gives us the opportunity to participate in the rapidly growing market for data centers where the demand is considerable. These two initiatives put us in a completely different position than where we were just 12 months ago. With the support of our board of directors and major shareholders, we have been able to successfully negotiate the expansion of the business to the point where we have significant short-term revenue growth combined with longer-term sustainable growth, putting us on the path to profitability. Whereas we have been disappointed with the results of our legacy technology business in recent years, I am pleased to report that in many respects, we are beginning to make progress in this area as well, and which we expect will make a contribution to the financial results in the second half of this year. We are carefully evaluating our cost structure as it applies to the three subsidiaries with the expectation that we will rationalize accordingly and achieve economies of scale that were not previously possible with just a single line of business. As you're all no doubt aware, we have been active in the capital markets in the past 15 months, raising more than $50 million and an average price of $5.97, or more than double from just 12 months previously. For the first time in the company's history, we are sufficiently capitalized to take advantage of the new markets we have entered. In addition to the rise in the share price, our average trading volume has increased from less than 10,000 shares a day, what the street calls trade by appointment, to more than 300,000 shares per day. Before reviewing the formal results for the second quarter and first half and giving formal guidance, it is my expectation that revenues will continue to grow in each of the next two quarters. Chuck will discuss the individual business lines and give progress reports. But whereas our much improved results were largely driven by the execution of the asset management agreement in the first half, I expect to start seeing a broadening of the revenue sources to include the revenues from our EDC deployments as they come online. and also better performance from our technology systems revenue line, all of which are anticipated to support a movement towards and achieving breakeven profitability by Q4. With that in mind, here are the results for the second quarter and first half. Total revenues for Q2 2025 increased 280% to $5.74 million, compared to $1.51 million in the second quarter of 2024. And for the six months ended 2025, total revenues increased 314% to $10.69 million from $2.58 million in the same period last year. The substantial majority of our revenues for Q2 2025 was approximately $5.69 million in recurring services and consulting revenue, of which $4.76 million was primarily driven by Duos Energy, beginning to execute against the asset management agreement with new APR. As a reminder, under the AMA, Duos Energy oversees the deployment and operations of a fleet of mobile gas turbines and related balance of plant inventory, providing management, sales, and operational support services to new APR. Cost of revenues for Q2 2025 increased 144% to $4.22 million compared to $1.73 million for Q2 2024. And for the six months ended 2025, cost of revenue increased 191% to $7.86 million from $2.7 million in the same period last year. The significant increase in cost of revenues was largely due to supporting the AMA with new APR. Overall, the cost of revenues on technology systems decreased compared to the equivalent period in 2024. This reduction is primarily driven by our ability in Q2 2025 to reallocate certain fixed operating and servicing costs for technology systems to support the AMA, an allocation we could not make in the comparative period because the agreement was not yet in effect. It also reflects the ramp down of manufacturing ahead of field installation of our two high-speed rail car inspection portals, which has continued to temporarily slow project activity and further reduce the cost of revenues while we await customer readiness for site deployment. Gross margin for Q2 2025 increased 808% to $1.52 million compared to negative $215,000 for Q2 2024. And for the six months ended 2025, gross margin increased 2,462% to $2.83 million from negative $120,000 in the same period last year. Gross margin improved primarily due to DUOS Energy beginning performance at the AMA with new APR. This includes over $900,000 in revenue recognized during the three months ended June 30th, 2025, related to the company's 5% non-voting equity interest in the ultimate parent of new APR, which carried no associated costs and therefore contributed at a 100% margin. These revenues and the associated margin contribution were not present in the prior year period. As I mentioned earlier, the increase in business from the AMA has improved gross margins with further improvements expected due to the greater profitability for DOIS on certain aspects of the anticipated work it will perform on behalf of new APR. Operating expenses for Q2 2025 increased 65% to 4.96 million compared to 3 million for Q2 2024. And for the six months ended 2025, operating expenses increased 38% to 8.06 million from 5.86 million in the same period last year. The increase in expenses is largely attributed to non-cash stock-based compensation charged for restricted stock granted to the executive team on January 1, 2025 under new employment agreements with a three-year cliff-festing schedule. In addition, the company recorded additional compensation expenses for commissions and bonuses, of which our one time in nature relates the closure of the APR transaction and the associated asset management agreement and 5% ownership grant. Overall, sales and marketing costs declined as resources were allocated to the cost of service and consulting revenues in support of the AMA with new APR. Additionally, research and development expenses decreased owing to completed development and testing of prospective technologies. The company continues to focus on stabilizing operating expenses, including evaluating reductions in some areas, while continuing to meet the increased requirements of our new businesses. Net operating loss for Q2 2025 totaled 3.44 million compared to a net operating loss of 3.22 million for Q2 2024. And for the six months ended 2025, net operating loss totaled 5.23 million compared to a net operating loss of 5.98 million in the same period last year. The increase of the three months but decrease in loss from operations for six months was primarily the result of increased revenues compared to the equivalent periods driven by revenue generated by Dewis Energy through the AMA with new APR. Net loss for Q2 2025 totaled $3.52 million compared to a net loss of $3.2 million for Q2 2024. The 10% increase in net loss was mostly attributed to the non-cash stock-based compensation charge for restricted stock and one-time compensation expenses that were not in the comparative period, offset by an increase in revenues generated by Duos Energy through the AMA with new APR as described above. For the six months ended 2025, net loss totaled 5.6 million or negative 48 cents per share compared to a net loss of 5.96 million or negative 81 cents per share in the same period last year. The 6% decrease in net loss was mostly attributed to the increase in revenues generated by Duos Energy through the asset management agreement with new APR as described previously. In our last call, I highlighted the substantial improvement in the company's balance sheet as of 12-31-2024 and 3-31-2025. In the second quarter, we have largely maintained that strength. notably shareholders' equity, which now stands at over $4.7 million. We ended the quarter with $3.81 million in cash and expected short-term liquidity. As previously discussed, a significant asset for Dewis is the equity investment in Sawgrass APR Holdings, now referred to as New APR Energy. Our 5% holding in this business is currently valued at over $7.2 million, and is expected to generate profits in future years as a profits interest structure. As Chuck will discuss, the tremendous progress that new APR is making will be additive in the short term through the AMA, and in the longer term through the expected increase in valuation of our equity holding. All of this is positive for DUA's future potential, and I look forward to updating you further in our earnings call later this year. 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. As a reminder, 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 a 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 pleased to announce that shortly after the quarter, we retired the remainder of the $2.2 million in debt funding. Next, I would like to update you on our backlog and pipeline. With expected revenues for the management and operations of new APR energy, expected deployments of our edge data centers, and current and anticipated contracts in our rail business, Our current contracts and backlog represent more than $40 million in revenue, with approximately $12.3 million or more of that projected to be recognized in 2025, plus a further $5 to $6 million in expected near-term awards and renewals. During the last call, we confirmed annual revenue guidance, and I'm pleased to report that we are again maintaining that guidance where we expect to record between $28 and $30 million in consolidated revenue from our three subsidiaries. I would further add that we are making good progress on moving the company toward profitability and expect that we will achieve that goal in Q4 of this year on an adjusted EBITDA basis. This concludes my formal remarks, and at this point, I will turn the call back to Chuck for his commentary.

Thanks, Adrian. As you can see from Adrian's commentary, the business has made good progress since the beginning of the year. Let me add some additional details to my opening remarks. With our EDGE data center business, which we'll refer to as the EDC business going forward today, we have now fully commercialized our first EDC in Amarillo, Texas, which now allows us to confirm our financial assumptions around installation costs and recurring revenues. Currently, we are simultaneously installing the next five EDCs in Victoria, Corpus Christi, Waco, and Dumas, Texas. An additional four EDCs will come off the manufacturing line starting in mid-September and go straight into additional Texas sites. We have now ordered another five EDCs along with backup generators and expect to install those starting in November. As you saw in our press release this morning, the expansion of our strategic partnership with FiberLite, a leading provider of high-capacity fiber optic networks nationally, has really helped us accelerate our commercial pipeline in Texas. To reinforce the success of EVC business, we will be adding more data center expertise to our staff, our management team, and our board of directors in the coming two months. Again, now that we have all the ingredients in place, commercial demand, capital, and execution know-how, I fully expect to accelerate the edge of data center business as we have discussed and more. As Adrienne and I discussed earlier, our asset management agreement with APR Energy has been outstanding this first six months. Our team has assisted APR in deploying approximately 550 megawatts in the six months since the deal closed. Watching our team install a 150 megawatt fast power plant in Mexico in 35 days flat was a reminder of the quality of the team we have assembled. The team has also installed and is operating several turbines and a behind-the-meter solution for a large U.S.-based data center where good technical lessons are being learned in this new emerging power environment. The overwhelming demand for behind-the-meter power for large U.S.-based data center operators is at an all-time high and expected to stay this way for some time. As Adrian said, the AMA provides good recurring revenue in the near term, but the longer-term value of the 5% ownership stake in APR Energy is what investors should keep their eye on. The energy team is currently closing in on several longer-term data center deals that I expect will use all of APR's existing turbines and will likely trigger an effort to acquire additional megawatts to expand capacity and overall enterprise value. As we've already alluded to, our rail car inspection portal business has made relatively slow progress, but we are seeing a modest uptick in interest by our current customers and renewed interest from the Federal Rail Administration and labor unions. Both groups would like to see us use expand, both groups would like to see expanded use of this technology. That said, we are reassessing our strategy around this business line and will share the way ahead to our investors at some future date. In conclusion, our business is commercially and financially in a great position to take advantage of the super hot demand coming from the data center computing gold rush. Our edge data center and power lines of business are perfectly positioned with the right leadership and expanding pipeline and fully capitalized to accelerate our growth strategy. As always, I want to thank our business partners, board of directors, and our current shareholders for their continued support. I want to extend a special welcome and thanks to our newest shareholders who participated in the recent race. The outlook for DUOS looks very promising right now, and I'm excited to be able to lead it. Thank you for listening, and we'll now open up the call for your questions. Operator, please provide the appropriate instructions.