Duos Technologies Group, Inc.

Good morning. Welcome to Duos Technologies' first quarter 2026 earnings conference call. Joining us for today's call are Duos' CEO, Doug Recker, and CFO, Leah Brown. Following the remarks, we'll 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'll turn the call over Commissioner Doug Ricker. Sir, please proceed.

Welcome, everyone, and thank you for joining us today. Earlier today, we issued our earnings press release, and at the end of last week, we filed our 10-Q for Q1 2026. Copies are available in the investor relations section of our website. I encourage all listeners to view press releases and our 10-Q filing to better understand the some of the details we'll be discussing during this morning's call. At a high level, our first quarter results reflect the continued execution of our strategic transformation towards a data center-focused platform with our dual-edge AI technology solutions division emerging as our primary growth drivers. As expected, results from the quarter reflected our in-progress transition away from the legacy rail operation and the planned wind-down of the new APR asset management agreement, which was the primary driver for the revenue in the period. At the end of the same time, we remain on track to exceed our $50 million revenue target for this year, supported by our strategic partnership with Hydrohost and our growing pipeline of AI infrastructure deployments. Before I get into the exciting updates on our DUOS Edge AI and Technology Solutions divisions, I'd like to first update you on our rail technology and DUOS energy subsidiaries. Since our last call, we've continued to make progress on the rail division divestiture. The company is currently going through a fairness opinion on the value of the rail division, and this process is expected to extend into the second quarter. As previously discussed, this was a thoughtful decision that will enable us to redeploy capital, reduce SG&A, and focus on higher growth opportunities. We will provide additional details as the progress moves forward. Turning to the Duos Energy Corporation, we saw a ramp down with reduced reliance on Duos services this quarter. As a reminder, In December of 2024, DUOS entered into an asset management agreement with New APR Energy to help find new contracts to engineer, procure, construct, and operate fast power plants. This was pivotal for us to make our data center business transition that is currently underway. As we previously discussed, the AMA will conclude later this year but we will retain 5% equity stake in the parent of APR Energy. In Q1, the company reported $1.55 million in revenue with a cost of goods sold of approximately $544,000. This was a step down from the previous period, and we expect it to continue to wind down in the coming quarters. Now I'd like to discuss our data center strategy and our newer line of business, Dulos Technology Solutions. As we build and deploy data centers at scale, controlling costs and optimizing procurement is critical given the capital intense nature of this market. As a smaller buyer, relative to hyperscalers and large co-location companies, we needed a more efficient way to procure equipment which led to the creation of the DUOS Technology Solutions. This division enabled us to reduce procurement costs for our own deployments while creating a new asset-light revenue stream, serving enterprise, hyperscalers, and contractor customers. I am pleased to report that DUOS Technology Solutions experienced traction throughout the first quarter. We successfully signed eight new large data center operators, and increased our backlog to approximately 14 million, all of which is expected to shift and be invoiced in 2026. Our pipeline for the technology solutions is several orders of magnitude greater than the backlog as of today, giving us an additional confidence in our outlook, specifically in the revenue ramp for the second half of the year. This new line of business helped Low overhead is high scalable while also being supported by strong customer commitments. We expect the revenue generated by the technology solutions to not only replace the revenue from the new APR AMA, but also provide better margins. Now I want to shift our discussion to the core of our new data center-focused organization, Duo's Edge AI. The demand for edge computing and AI infrastructure continues to grow rapidly, and we believe DUOS is well-positioned to address this demand through our modular data center platform. Following our recent capital raise, including the $65 million in financing completed in March, we have significantly strengthened our balance sheet and are well-capitalized to support near-term deployments and future growth. Our focus for the first half of 2026 is to continue executing our sales strategy to acquire new customers in our markets to fully utilize capacity of each EDC. During the quarter, we make significant progress across two key revenue streams, the GPU as a service and high-power co-location. Under our GPU as a service agreement with Hydrohost, we expect to deploy 2,304 NVIDIA GPUs across our Edge Data Center platform. This contract represents approximately $176 million in total revenue over a 36-month term, with total anticipated revenue of roughly $50 million, projected margins exceeding 80%, and approximately $40 million in expected EBITDA. Importantly, in addition to the GPU as a service revenue, This partnership is expected to generate external co-location revenue of approximately $25 million over the term, further enhancing the overall economics of the relationship. We have already received $15 million down payment with an additional $3 million deposit pending currently. We are actively executing on initial deployments. We continue to expect revenue from this agreement to begin ramping in the second half of the year. Separately, we were awarded a high-power co-location contract to deliver 4.8 megawatts of critical compute capacity to support a leading hyperscaler high-density GPU cluster. Together, these agreements represent a significant commercial inflection point, establishing two complementary high-margin revenue streams and validating our edge data center platform at scale. At the same time, We are also seeing increasing demand for high-density data center capacity, driven by AI and advanced compute workloads, with demand now measured in megawatts rather than kilowatts. These higher power capacity EDCs should provide much higher monthly recurring revenue for DUOS. DUOS currently has 10 megawatts contracted and an additional 15 megawatts planned for deployment in 2026. and we continue to expand our pipeline of edge data center opportunities to support growing demand for our AI training, inference, and high-performance computing workloads. Geographically, we are expanding into multiple regions across the country, including Maryland, Iowa, Georgia, and Texas, as we position the platform to serve both enterprise and hyperscale customers. Within our existing EDCs, we've also begun hosting open houses for the surrounding communities as well as prospective customers to provide an opportunity to explore how edge data centers enable faster connectivity, localized computing power, and AI readiness. We've recently announced a few of these community initiatives and expect to host several more over the coming months. Since announcing our recent contracts, we have seen strong inbound interest from hyperscalers, new cloud providers, and other large-scale compute customers. Supporting a growing backlog and pipeline, we are currently evaluating new power partnerships that will enable green solutions and faster deployments for our Megawatt sites and expect to provide exciting updates in this area in the near future. In closing, We believe Duos is at a pivotal inflection point. We are transitioning to a higher growth, higher margin business model, building strong visibility through contracted opportunities and pipelines, and positioning the company to deliver meaningful revenue and even a growth as we move through 2026. Now I would like to turn it over to our CFO, Leo Brown, who will go over our financials for the first quarter of 2026. Leo?

Thank you, Doug. This has been an encouraging and productive start to 2026 for Duos. The first quarter included several landmark announcements, strategic financing, strong backlog growth, strategic investment, and meaningful progress toward building a stronger, more scalable company. I will now walk through our first quarter 2026 financial performance and highlight key operational drivers that shaped our results. For Q1 2026, total consolidated revenue was approximately 2.7 million compared to 4.9 million in the first quarter of 2025. Total revenue for Q1 2026 represents an aggregate of approximately 44,000 of technology systems revenue, 562,000 of technology solutions revenue, approximately 532,000 in services and consulting revenue, $1.5 million from related party services and consulting agreements, and approximately $30,000 of hosting revenue. The decrease in total revenues was primarily driven by the planned down draw from the Duo Energy and New APR Asset Management Agreement, the AMA, that Doug mentioned previously. The company delivered materially stronger gross margin in Q1, 2026, generating $1.6 million in gross profit, achieving approximately 59% margin, a significant year-over-year improvement. This was driven by reduction of cost of goods sold, largely reflecting the impact of the transition of the AMA, the associated decline in related costs. The company also recognized approximately 900,000 of revenue during the first quarter of 2026 and 2025 related to its 5% non-voting equity interest in the ultimate parent of new APR. As this revenue has no associated cost of revenue, it contributed at a 100% gross margin. The company reported net loss of approximately 3.5 million for Q1, 2026 compared to a net loss of 2.1 million for Q1, 2025. The year-over-year increase was primarily driven by lower revenues resulting from reduced scope of services, dual energy provided under the AMA with new APR, as well as higher operating expenses. As we discussed on previous earnings calls, achieving positive adjusted EBITDA in Q3 and Q4 last year were important milestones for the company. reflecting the early benefits of revenue scale and margin improvement. In Q1, 2026, adjusted EBITDA was negative 1.5 million. We did not report adjusted EBITDA in the prior year period, but on a comparable basis, this reflects the impact of the items discussed earlier. While we did not achieve positive adjusted EBITDA in the quarter, we expect improved profitability as revenue ramps in the coming quarters. Let's shift to the balance sheet. The company ended Q1, 2026 with $33 million in cash and cash equivalents. Our cash increased significantly. compared to December 31st, 2025, as a result of our 65 million capital raise in March, which strengthened liquidity and enhanced our ability to support operations and fully fund our planned investments as part of our agreement with Hydrohost. As of March 31st, 2026, Hydrohost has secured a customer for the company. And this customer provided a deposit of 15 million to the company in May, 2026, with an additional 3 million currently pending. Now I'd like to turn to our 2026 outlook. At the end of the first quarter, the company's bookings represented approximately 43.5 million in revenue, of which all is expected to be recognized during the year, included contracted backlog and near-term anticipated awards. In addition, approximately 1.1 million of the contracted technology solutions deferred revenue recorded in 2025, will be recorded as revenue in 2026, further supporting the company's performance. Based on these committed contracts and near-term pending orders that are already performing, hours scheduled to be executed throughout the course of 2026, the company is reconfirming its executive expectations for the total revenue in 2026 to exceed 50 million. Let me briefly walk through how we bridge from approximately 2.7 million of Q1 revenue to our 50 million full year target, which we know is a key focus for our investors. The primary driver is our GPU as a service business, which we expect to contribute approximately $26 million, largely recognized in the second half of the year, as the project comes online and utilization ramps up. In addition, we expect to generate approximately $26 million from our technology solutions backlog, which provides a solid base of committed revenue. This includes 2.9 million currently recorded as deferred revenue that will be recognized in the second half of the year. We also remain on track to recognize 15 million of bookings as revenue in 2026 supported by an additional $25 million in backlog. We also anticipate the balance of guidance to be recognized due to incremental contributions from co-location and infrastructure services, driven by customer expansion, new hosting deployments, and continued capacity build-out, along with new customer wins we are actively pursuing. Together, these visible drivers give us confidence in reaching our full-year target. To reiterate, due to the timing of revenue recognition, a significant portion of revenue is expected to be recognized in the second half of the year, during which time we also expect to return to positive adjusted EBITDA. Doug I'll now turn it back to you for final comments.