DUOT earnings call analysis

NASDAQ:DUOT Q4 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: Good afternoon. Welcome to Duos Technologies' fourth quarter and full year 2025 earnings conference call. Joining us for today's call are Duos President Doug Recker and CFO Leah Brown. Following the remarks, we will open the call to 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'd like to turn the call over to Mr. Doug Becker. Sir, please proceed.

Doug Becker | Chief Executive Officer

Welcome, everyone. Thank you for joining us. Earlier today, we issued our earnings press release and our 10-K for 2025. Copies are available in the investor relations section of our website. I encourage all listeners to view press releases and our 10-K following to better understand some of the details we'll be discussing during this afternoon's call. Before I begin, I would like to take a minute to personally thank Chuck Ferry for his leadership and guidance. Chuck has served the DUOS organization and provided personal mentorship to me. I value Chuck and the opportunity he has provided me at DUOS. It is not every day that you get to be mentored by a war hero and a corporate champion. And for that, I will be forever grateful. I look forward to your continued mentorship and guidance as you continue to serve on our board of directors. Thank you, Chuck, for all you have done and continue to do for the DUOS organization. As your newly appointed CEO, I am honored and excited to discuss the focus of DUOS Technologies Group. We are now fully dedicated to the data center market through our DUOS Edge and Tech Solutions Division, driven by accelerating customer demand. I will get into more of that in a minute, but want to give you an update on the rail technology and DUOS energy subsidiaries. First, let me talk to you about our legacy business, which is a rail car inspection portal. In the previous calls, we had discussed that this line of business has become less important to our future at DUOS. We also talked about diversifying our business strategy to edge computing. Thus, we have made the decision to completely divest the rail division. This divestiture is expected to take place over the next 60 days. This decision did not come lightly. and I know the rail technology has a rich history with Duo shareholders. In fact, my involvement goes back many years before joining Duos, and I was intimately involved in the design and building of the edge data centers that the portal uses today. However, the lack of growth and regulatory hurdles for that business has proved to be extremely challenging to manage. The decision to invest frees up company resources and cuts significant SG&A expenses. More details will be made available on the few divestitures in the near future. Second, I would like to talk about Dewis Energy Corporation. As many of you may remember from last year, Dewis entered into an asset management agreement with New APR Energy to help find new contracts to engineer, procure, construct, and operate fast power plants. Dewis also was giving a 5% equity stake in the parent of APR Energy. The AMA provided the interim financial ability to execute and pivot to our data center strategy. We announced on the Q3 earnings call that the AMA would conclude in 2026, but DUOS will retain the 5% equity stake. Now I would like to discuss our data center strategy and our new line of businesses at DUOS Technology Solutions. Part of our strategy in building and deploying data centers at a rapid pace has always been focused on cost savings, lowering our capital expenditures. Building data center infrastructure is very capital intensive. As Duos is a relatively small buyer compared to the larger hyperscalers and co-location companies, we needed a way to buy products cheaper. So we created Duos Technology Solutions. This brand new division allows us to do just that, as well as provide a new stream of revenue for us. We started by hiring an industry veteran with a proven track record who understands our business as well as the data center market overall. Kristen Sanderson joined Duos and will serve as the Senior Vice President of Duos Technology Solutions. Kristen has over 18 years of data center product experience, vast market distribution knowledge, relationships with all the key supplier partners that Duos needs to work with, and a wealth of relationships in the data center industry. This new division allows DUOS to procure materials for its own builds at a much lower rate than the legacy way of purchasing through traditional distribution. DUOS Technology Solutions offers the same strategic sourcing and product distribution to new customers, including large-scale enterprise organizations, hyperscalers, large co-location companies, low-voltage contractors, and general contractors across the United States. I'm very pleased to report that through the first quarter, Duo's Tech Solutions has already sold 10 million in new business, which currently sits as backlog, all of which I expect to be recorded as revenue this year. This new line of business has low overhead and is simple to execute while having strong commitments by the end client. The revenue generated from Tech Solutions is expected not only to replace the revenue from the new APR AMA, but also provide better margins, thus further contributing to the overall future profitability and growth of Duos Technologies Group. Kristen has built a seasoned team with the talent and short three-month build, tremendous sales pipeline, and we expect amazing things from this new venture. Now I want to shift our discussion to the core of our new data center-focused organization, Duos Edge AI. The demand for edge computing continues to grow at a rapid pace, and I'm pleased to share that Duos Edge AI is in a great place to meet this demand. The second half of 2025 proved to be extremely busy for Duos Edge. In July 2025, we successfully completed a capital raise of $45 million with Titan Partners to fund the construction and deployment of 15 EDCs to further broaden the connectivity and compute needs of underserved Tier 3 and Tier 4 markets. Lewis Edge AI was also awarded a patent for clean room technology for modular data center deployments, which gives us a strategic competitive advantage in the space. Our goal in 2025 was to procure, manufacture, deploy 15 edge data centers. This goal was extremely aggressive and unheard of in our industry. We are proud to report today that we have accomplished that goal. 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 the capacity of each EDC. In March 2026, we completed a 65 million capital raise to deploy approximately 2,300 GPUs as a service. a 4.8 megawatt high-density EDC deployment for a leading hyperscaler and to expand our high-density EDC footprint to support growing demand for power and compute across AI inference, training, enterprise, and hyperscale AI workloads. We also have five new EDCs in production with plans for an additional 20 megawatts of deployed capacity by year-end. Having inventory for our EDCs to deploy is crucial for our continued growth and success in this market. The Duos Edge AI story and its initial success is garnering tremendous excitement and demand, so inventory will allow us to react quickly to new market requests. Part of this new demand we now see is for higher density power, which serves AI and high-powered compute needs. While Duos Edge AI is committed to sustainability, Taking to our original model of deploying in the Tier 3 and Tier 4 markets, we are seeing unprecedented demand for power in megawatts compared to kilowatts. The data center market is experiencing a boom like we've never seen before, and building at scale is costly, and it takes years to complete. During the course of this deployment, our 15 EDCs, we saw an influx of calls requesting more power in the markets where we reformed organizations all across the country. There is such a shortage of data center space and power that companies are turning to Duo's Edge AI. So we are going to start to build our new EDCs with greater power capacity to meet this demand. We have shown the market we can deploy at lower costs with an incredibly faster speed to market. Duo's Edge AI will now be able to cater to customers that have the high density needs like the NeoCloud providers and hyperscalers for their remote edge sites. These higher power capacity EDCs should provide much higher monthly recurring revenue for DUOS, which we will explain in our financial update coming up shortly. Before I transition to the financials, I would like to touch on our start of the year and our first partnership in deploying high-density power EDCs. This month, DUOS executed its first contract across two newly launched business lines, GPU as a Service and high-power co-location service for AI infrastructure. Under our GPU as a service agreement, NUOS will deploy 2,304 NVIDIA GPUs across our Edge data center platform, generating reoccurring revenue through a GPU rental model purpose-built for enterprise and AI workloads. This contract is expected to generate approximately $176 million in revenue over a 36-month term. with margins exceeding 80%, an expected annual EBITDA of approximately 40 million. Separately, DUOS was awarded a high-power co-location contract to deliver 4.8 megawatts of critical compute power to support a leading hyperscaler's high-density NVIDIA GPU cluster, housed within DUOS Edge data centers. This contract represents DUOS' entry into the market of high-power co-location where demand for AI-grade infrastructure continues significantly outpacing supply. Together, these contracts mark a significant commercial inflection for DUOS, establishing two distinct and complementary revenue streams within our data center platform and validating edge data center infrastructure at the highest level of the AI compute market. Since announcing these contracts, we have received strong incremental inbound interest from hyperscalers, Neocloud providers, and other large-scale compute customers seeking high-density EDC solutions, we see a significant opportunity to scale the high-power EDC model through 2026 and beyond. Now I would like to turn it over to our CFO, Leah Brown, who will go over our financials for 2025. Leah?

Leah Brown | Chief Financial Officer

Thank you, Doug. This has been an exciting year for Duo. 2025 is a year marked by significant revenue growth, strategic investment, and meaningful progress toward building a stronger, more scalable company. I am truly excited to walk through our full year financial performance and highlight key operational drivers that shaped our results. For 2025, total consolidated revenue was approximately $27 million. The company previously projected revenue in 2025 of $28 million. Although that target was not met, we recorded a little over $1 million in deferred revenue for technology solutions, which is contracted, cash was received, and we will record as revenue in 2026. In 2025, the $27 million in revenue was a significant increase compared to 7.3 million in 2024, which is over a 270% increase year over year. This growth was primarily driven by services and consulting revenue from the asset management agreement with new APR energy, totaling 22.4 million in 2025 versus 900,000 in 2024. The company delivered materially stronger growth margin in 2025, generating 7.9 million in gross profit, achieving approximately 29%, a significant year-over-year improvement. This was driven by improved cost absorption, and continued operating efficiency. The company reported net loss of approximately 9.8 million in 2025, an improvement from the 10.8 million net loss in 2024. The year-over-year improvement was driven primarily by higher revenue and significantly stronger gross margin. As we discussed on our Q3 earnings call, achieving positive adjusted EBITDA was an important milestone for the company, reflecting the early benefits of revenue scale and margin improvement. I'm pleased to report that we built on that progress in Q4. Delivering positive adjusted EBITDA for the second consecutive quarter, This consistency is meaningful and demonstrates that the Q3 result was not a one-time event, but rather the continuation of improving operating performance as the business scales. The consecutive improvement from Q3 to Q4 reinforces our confidence in the direction of the business, driving higher revenue volume improved growth margin, and more efficient cost structure. Let's shift to the balance sheet. The company ended 2025 with approximately $63 million in total assets, reflecting meaningful growth year over year. Cash increased significantly compared to the prior year, driven by capital raise during the year, which strengthened liquidity and enhanced our ability to support operations and planned investments. Another strong position on the balance sheet is property and equipment, each with significantly increase year over year, reflecting continued investment in infrastructure and assets required to support the program execution and long-term growth initiatives. The current contract liabilities, over $5 million, supports the company's future revenue recognition. On the equity side, capital raised during the year strengthen our balance sheet and liquidity, while ongoing investment in the business aligns our strategy to scale operations and drive longer-term value creation. 2025 was a transformative year for Duo Technologies Group. We significantly scaled revenue, strengthened our liquidity position, and made strategic investments that positioned the company for increased operating leverage and margin expansion going forward. As previously reported, the rail segment remains relatively flat. In response, we are divesting the rail business and reallocating resources to support the continued expansion of our EDGE data center segment. Turning to our 2026 outlook, the company is providing revenue guidance of 50 to 55 million in total revenue across all business lines. This forecast reflects growth from both our core operations and newer initiatives, which Dove will cover, and we believe positions us for a strong year. Due to the timing of revenue recognition, a significant portion of revenue is expected to be recognized in the second half of the year, coinciding with the periods in which we expect to achieve positive EBITDA. Our investment and expanded revenue opportunities give us confidence in our ability to execute and continue building a stronger, more profitable company. Doug, I'll turn it back to you for additional comments.

Doug Becker | Chief Executive Officer

Leah, thank you. Before we open this up for questions, I wanted to say again how honored I am to serve as your new CEO. The new data center focus strategy is the new newest group Duos Technologies Group, and we are poised for great success. We have been awarded Global Recognition with the Innovation of the Year Award at the largest data center and telecom conference at Pacific Telecom Council, 2026 in January. We have also been nominated for Breakout Success in North America Digital Infrastructure Leader of the Year from the Tech Capital Global Awards coming up in May. The Global Recognition only solidifies we are on the right path at Duos with a prosperous future ahead. We understand we have a new focus, and this is a departure from our legacy business past. We are taking steps to ensure the new messaging is relayed to the market and that we will be given the appropriate market coverage moving forward. We will be retaining an IR firm to assist and expect several analysts to report on our new focus and business activities in the near future. And with that, I will open it up to questions. Operator?

Operator | Conference Operator

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Ed Wu with Ascended Capital Markets.

Please proceed. Ed Wu | Analyst, Ascended Capital Markets

Yeah, I'd just like to give my congratulations to you, Doug, and to the entire duals team. The growth that you guys had has just been amazing. My question is, as, you know, you mentioned that demand remains very, very strong. are there any worries of competitors entering this market? And what can duals do to be able to, you know, have the advantages to be able to compete if new entrants come in?

Doug Becker | Chief Executive Officer

That's a great question, and that's why we manage the business appropriately. So you're going to see some people come into the market, like you just probably saw the press release from Caruso. They're entering the market as far as building 5 to 10 to 20 megawatt modular data centers. They're one of the largest in the business, they build Stargate, they're huge. So that in itself tells us we're in the right market. But what we've done, and this is an incredible piece, I just got back from GTC, and everybody was talking about how they're concerned about deploying with modular because EPs are extremely sensitive to particles, to dust. And Ironically, in the best part about our business, we obtained a patent in September called the Clean Room. We actually have a patent that goes on top of our – it connects to our modular data center that cleans the air before you come in. So all the particles on your body, on your equipment, are blown off, filtered off. Then you walk actually into the data center. That is huge when it comes to deploying because what's going to happen is, the GPU providers like NVIDIA and everybody that makes chips, everybody that makes servers, they won't honor their warranties if the fans get dirty and dust in them. So that is a huge win for us, and it's going to help us, you know, differentiate us from the competitors coming in the market. You will see them, but we are the only ones that have deployed, prime example, 15 pods. I challenge everybody that comes into this business that doesn't have a 3D rendering to to go look at, physically look at their pods. We had a customer fly in from China last week, and they flew into Corpus Christi and toured our pods just to see our manufacturing capabilities. So it looks like there'll be a new customer of ours on the hyperscale side possibly. So we have the experience. We've done it. We can actually show people our market. They can physically go there, see our customers, see gear burning, and see how the facility works. So we welcome the competition, but we're strongly Strong where we sit.

Ed Wu | Analyst, Ascended Capital Markets

That sounds good. And my last question is, you know, kind of like a longer-term plan. I know you guys have kind of been focused on the rural underserved markets. Is there plans to go into the bigger markets? And also, you mentioned China customers or China partners. Do you anticipate possibly going international?

Doug Becker | Chief Executive Officer

Thank you. Yeah, great question. Right now our focus is Tier 3, Tier 4 markets, and let me tell you why. The demands to deploy in a Tier 3 market, I can deploy my pods and get access to power in 90 to 120 days. If I go into a Tier 1 market, I'm competing against the larger data centers and the infrastructure that's already in place. we're going to build infrastructure fast. So where do you do that? You go into markets that have accessible power. They've built substations that have 5 to 10 meg available on them, and permitting is a lot quicker. So our focus is going to continue to Tier 3 and Tier 4 markets, and that business sector is huge, and it's going to be huge for the next 10 years.

Tom Leonard | Analyst, River Bay Investments

Thanks for answering my question.

Doug Becker | Chief Executive Officer

Yeah, and to answer your international question, Once we start deploying at scale here and move on, we'll be open to international. But right now, our number one focus is in the U.S. into the Tier 3 and Tier 4 markets.

Ed Wu | Analyst, Ascended Capital Markets

Great. Well, thank you, and I wish you guys good luck.

Doug Becker | Chief Executive Officer

Thank you, sir.

Thank you so much. Operator | Conference Operator

Thank you. Our next question comes from the line of Dan Weston with West Capital Management.

Please proceed. Dan Weston | Analyst, West Capital Management

Yeah, hi. Good afternoon, everyone. Thanks for taking the questions and congrats on the quarter. Doug, a couple of quick points of clarification. I think you mentioned you were expecting to have or you do have five new EDCs in production to be deployed by year end, if I heard that right. Are those five EDCs specific to the GPU as a service contract you just signed?

Doug Becker | Chief Executive Officer

No, those five EDCs are committed to markets that have been contracted. So there are markets in Georgia, and we're working with a utility to deploy on their network as well. So those are our normal pods that we deploy and that we've deployed. Like the 15 we've deployed, they're identical. All right, okay. Yeah, and let me give some clarification because this might help answer a lot of questions for other folks too. Okay. We're still building our same model. Our core is you go after the education healthcare and local government in these markets. But what we're doing at the factory is we're building the pod with more power. So we're deploying these units, the same concept, the same places, but we're building them more at scale so we can bring in higher density users. So, yeah, so that's the model.

Dan Weston | Analyst, West Capital Management

Got it. Thank you for that clarification. Back to the first GPU as a service customer that you just recently signed, when do you expect to have those larger pods, if you will, in the ground and expected to generate revenue?

Doug Becker | Chief Executive Officer

We're on track for July, August. So, you know, with permitting and things like that, I want to say August to you, but we're looking good.

So more August timeframes. Dan Weston | Analyst, West Capital Management

That's amazing. And as it just kind of ties into the guidance that Leah provided, if Leah, if you're if you're there, I think I wrote down 50 to $55 million of revenue expected for this year. Could you give us a sense of how that revenue breaks down, please?

Leah Brown | Chief Financial Officer

So, yeah, thank you for that question. So The revenue line that we anticipate for this year, we're expecting definitely on a holistic view to achieve that aggregate. As a company, we don't go into specifics for each business line, but overall, we do anticipate to meet that guidance.

Dan Weston | Analyst, West Capital Management

Okay. Okay. I understand. And while you're there, you mentioned the PP&E up at 27 million and change. That's obviously a massive increase from last year, but also up 12 million from your Q3. Can you give us a breakdown of what that PP&E is, please?

Leah Brown | Chief Financial Officer

Absolutely. So, the majority of our PPE is our edge data centers. So, we have 15 edge data centers. And we've also started pre-buying for the next lot that is coming online in 2026. So you, the majority of that, yes.

Dan Weston | Analyst, West Capital Management

Great stuff. And then last one for me, I'll jump back in. Doug, I think you mentioned that you'd secured the 4.8 megawatts of power for, I assume you're talking about the GPU as a service contract. The initial LOI, I think you mentioned 10 megawatts. dedicated to that project. Could you explain a little bit what the delta is there between the 4.8 and the 10 megawatts?

Doug Becker | Chief Executive Officer

Sure. So the site is built to 10 megawatts. So there's 10 megawatt available. So they're taking down 4.8 for critical load. So that means I can add to that site quickly up to 10 meg. Now that site can go to 20 meg, but it might take another year to get access to another 10. So the winner here is that site has a capability that's already been transformed down at 10 meg. So there's 10 meg physically available today if I wanted to sell it. So I would just build the pods. I'd build another section of pods to get to the 10 meg. So another 5 meg cluster of pods.

Dan Weston | Analyst, West Capital Management

And in terms of, you know, real estate, if you will, there's plenty of space there to just drop another 2, 3, or 5 pods down if needed.

Doug Becker | Chief Executive Officer

Yes, so there's three acres there, and what we've noticed is three acres is plenty. Basically, if you look at our model, you know, if we're deploying five megs, it's really like looking at five school buses.

Dan Weston | Analyst, West Capital Management

Understood completely. Do you anticipate that your first technology, global technology customer for the GPU as a service will end up taking the whole 10 megs?

Doug Becker | Chief Executive Officer

Yes, the actual, there's two customers that are, yes, absolutely. They're looking at five more sites at five megs with us right now. Obviously, we've researched, we found five sites with the power there. But we're going to get this one installed and the one in Iowa installed first. And then, you know, then we'll report on how quickly we did it and how the revenue looks. But the demand, I mean, I came back from GTC and there was 21 sites We had 21 inquiries on five to 10 mag sites. That's amazing. The demand in this niche is unbelievable. So like I said, I'm not real worried about other people coming in. Our secret sauce is how we deploy quickly, how we find the power. We have a secret to that. And the other piece is the clean room. I don't see you, prime example, in one of these pods, you're talking $10 to $12 million just in GPU in a pod. So a clean room, I don't understand why you wouldn't go to somebody that has a clean room. It doesn't cost them more.

Dan Weston | Analyst, West Capital Management

Understood. Yeah. By the way, do you anticipate that you'll be able to disclose who that first technology customer is in the near future?

Doug Becker | Chief Executive Officer

I'm not sure. It's a very, very, very strict NDA right now. So I think maybe once we prove ourselves to them, it might be an option, but – Put it this way, they're tier one, so we're good.

Dan Weston | Analyst, West Capital Management

I appreciate that. Let me squeeze one last one and I'll hop back. You mentioned that there was a $10 million backlog in the tech solutions business that you expect to record as revenue for this year. Is that typical for this business where the booking of the contract could take several quarters to actually run through the revenue line?

Doug Becker | Chief Executive Officer

Yes, exactly. So let me give you an example. So we sell a lot of, and we have a lot of, you know, our funnel is huge. So we have a lot of, like, cabinets, PDUs, fiber connectors. Those are 60 days, 90 days max, right? Well, we book that. We ship it out quickly. But UPSs and other switchgears are six to eight, some of them are nine months out. So that's, you know, we had a big booking towards the end of the year, but it It took three months for us to bill it, right? So a lot of the bigger products take longer. But everything that we're booking that's in the funnel and that you see us report in this quarter, next quarter, we'll all bill this year. Because the majority of it is, I wouldn't say off the shelf, but it's more UPS, PDUs, cabinets, cold aisle containment, that kind of stuff. And there's a lot of it.

Dan Weston | Analyst, West Capital Management

That's incredible. I really appreciate you taking the time to answer the questions.

Congrats to everybody. Doug Becker | Chief Executive Officer

Thank you. That's why I'm here. I love the questions. Thank you, sir.

Operator | Conference Operator

Thank you. Our next question comes to the line of Nico Saxetti with RBC.

Please proceed. Nico Saxetti | Analyst, RBC

Hey, Doug.

Doug Becker | Chief Executive Officer

Nico, sir, how are you? Good to hear your voice.

Nico Saxetti | Analyst, RBC

Yeah, I'm good. Maybe I'll piggyback on Dan's last question here. Okay. So not only is that 10 million of the distribution business, you know, going to actually recognizing revenue, there's 10 million, like a quarter, a typical run rate for that business. Is that a huge quarter? Is that low? You know, obviously not looking for a definitive guidance or signing with an idea of what, you're like expecting or what that capability could be in just like a normalized situation.

Doug Becker | Chief Executive Officer

Yeah, and we're new to the business, but what we're seeing is, you know, when we can recognize it and how stable it is. So, you know, let's say the funnel is over $150 million, you know, Depending on what the product is.

Nico Saxetti | Analyst, RBC

To clarify, you said the funnel, like annual capacity, is that – okay. Is that like your high-end number that you could do in there?

Doug Becker | Chief Executive Officer

The $10 million was over two months, and that was when they first started. So obviously we're looking at a lot greater than that.

Nico Saxetti | Analyst, RBC

I thought you said the funnel is $150 million. Is that like an annual plan or capacity that you could deal with? Did I hear that number right?

Doug Becker | Chief Executive Officer

Yeah, that number is from two sales reps that she's hired.

That's in their funnel. Nico Saxetti | Analyst, RBC

Okay, I got you.

Doug Becker | Chief Executive Officer

For this year, and that's only for three months of doing business. We just started that group. I mean, look, one data center buys $1.6 billion worth of product, right? So that's normal, believe it or not, in this industry.

Nico Saxetti | Analyst, RBC

So it would be fair to say, you know, if there was any kind of negative perception around the loss of that $20 million two years, That's exactly right.

Doug Becker | Chief Executive Officer

That's why we brought it on. And Nico, just real quick, just real quick about that division. Remember, the main reason we brought that division on is In the marketplace right now, everybody knows to build a megawatt, it's anywhere from $10 to $13 million, right, to build a megawatt. Why they're looking at us is I can build a megawatt for $6.5 million. And how do we do that? It's because an infrastructure group has direct to the manufacturer now. So I'm not buying through a Wesco or a Graybar. So 20% to 30% comes off the line because I buy direct.

Nico Saxetti | Analyst, RBC

So you are offering – something that can be set up substantially quicker than like a traditional football field size data center and at a lower cost is what it sounds like. That's right. Yeah. And you thought of removing some of the lower costs and just go with the shorter time frame and look for a better margin profile.

Right. Doug Becker | Chief Executive Officer

And we can deploy quicker. Remember that. So, in the CapEx, there's an intention. So, you're deploying five megs at $25 million.

It's a big difference. Nico Saxetti | Analyst, RBC

So, a lot of what I have are just clarification questions. Obviously, there's a lot of moving parts. It just doesn't make sense of you know, what was the company you had, the AMA, the equities, the software, and then, you know, it's going towards this modular data center, you know, school, hospital, intertenant, you know, the metrics around that were very black and white, like cost, what the revenue opportunity is, and then, you know, it seems like we're kind of pivoting again, and so I just want to make sense of all of these moving parts and Maybe it would be helpful if we could clarify the deck that you have available on your website from February, I think it is. Is this, like, good information? Is this some difference in metrics from what's on the slide versus, like, what was reported? And I just have some clarification questions. I'm just curious, like, how is that in stone? the numbers were off of that specific presentation.

Doug Becker | Chief Executive Officer

Yeah, so we're actually after, obviously after the call, we're going to update, because now we've recognized and told some information. We're going to update that, but just remember, there's two, and I don't want to make it confusing, I'm trying to, that's why I'm trying to change the model here a little bit. There's two pieces to our business. One is the EDGE data center business, and the one is the infrastructure. The EDGE data center business the GPU business falls under the edge data center business. Remember, it's the same pod. It's the same concept. It's just I'm building them bigger. Just look at the GPU as a different type of customer. So I'm just bringing in different types of customers. So it's the same model. The revenue is a lot higher, obviously, because they're taking power. We make money off of PowerSpace and CrossConnect, right? So the more power we sell, the more money we make. But obviously, the CapEx goes up in the pod cost. The model, you know, and I'm pretty sure we shared that, the model on the GPU is a big difference. Prime example, remember our pod model at 15 cabinets is $350,000 to $400,000 a year. That's the goal, right, out of that? If you compare it to the GPU model, you know, one mag, you're at $1 million a year. So at 4.8 megawatts, you're now at almost a million dollars a month. So why not build the pod bigger and take the customers in that need that power? When all it is for us is at the factory, we just put bigger panels in.

Nico Saxetti | Analyst, RBC

So when you say the same model... You know, you've talked about the original, the standard version of this. It's going in kind of like tier 2 to tier 3 markets for all areas, whether it's like 500 miles to the data center. What's that?

Doug Becker | Chief Executive Officer

And you show you're cutting out. It's hard to hear you.

Nico Saxetti | Analyst, RBC

Yeah, I think I'm having trouble hearing it. I just want to get, like, do you have, it sounds like it totally depends on what unit, so what the metrics are, where it was much more standardized with the other version, the original model. And then, when you say the same model, are they going in the same location, where instead of it being a co-location where you still have the hospital and the school hall, and it's in a rural area, And you're just having less of it available to be leased out, essentially, by maybe other businesses in that town now.

Doug Becker | Chief Executive Officer

Yep, you're exactly right, Nico. That's exactly right. So our core customers are our anchor customers, which are education, healthcare, and then enterprise in that market, right? The carriers coming in to take space so they can peer and cross-connect to each other.

Nico Saxetti | Analyst, RBC

You there?

Yep. Doug Becker | Chief Executive Officer

Someone's cross-talking. I'm sorry about that. But, yeah, Nico, if you can hear me, that's the original model, and that's why we're sticking with that model. We're just adding more capacity to bring those customers in that need higher density. So we're always servicing that market, and that's what helps us get into those Tier 3 and Tier 4 markets, especially with permitting and everything, because we're low on the radar. We're not 10, 20, 30, 40 megawatts. that they have to build out that's draining the community. We're going after power that's already there that's in excess that the utility wants to make money on. So in return, it helps the local community as well in tax dollars.

So they're actually welcoming us. Operator | Conference Operator

Thank you. Our next question comes from the line of Carl Weiss with Grow Funds.

Please proceed. Carl Weiss | Analyst, Grow Funds

Hey, Doug. How you doing?

Doug Becker | Chief Executive Officer

Good, sir. How are you?

Long time no see. Carl Weiss | Analyst, Grow Funds

Yeah. I was wondering if, you know, you can kind of talk to, you know, at scale, you know, as you go into the second half, you know, what does the, you know, the model look like from a gross margin perspective? And then with all of the, you know, selling the rail business and winding down the management contract, What kind of op-ex should we expect, you know, on a go-forward basis?

Doug Becker | Chief Executive Officer

We'll talk real quick. Let me take over the rail. So the rail business, we're hoping to offload or, you know, decommission that business, offload it in the next 60 days. That's the goal on that. So there's no burn on that business for us right now. So hopefully we'll exit that. It frees up. A lot of SG&A, so we'll obviously not carry that load of employees and all the other expense. So that's a good thing, and that should happen in the next 60 days. But I'll turn it over to Leo on your numbers there.

Leah Brown | Chief Financial Officer

Sure. So, Carl, good afternoon. Yeah, so we should expect to see a gross margin improve the second half of the year. Just a reminder, with the revenue recognition for some of our business lines, you are going to see that revenue recognized in the second half of the year. So we're looking at gross margin, you know, around 7 to 6%.

Carl Weiss | Analyst, Grow Funds

Gross margin, shouldn't it, well, you know, the center, the data centers themselves are what, 70 to 80 type gross margins?

Leah Brown | Chief Financial Officer

Yes, exactly. So we should see around, for gross margin, you're about $7 million, $6 million. Oh, got it. Yeah, exactly. So just, you know, when we report here in May, you'll see our Q1, but you'll be able to see that revenue picking up in Q3 and Q4.

Carl Weiss | Analyst, Grow Funds

And OpEx should actually be coming down at the same time.

Dan Weston | Analyst, West Capital Management

Yes, yes.

Carl Weiss | Analyst, Grow Funds

Okay. And then just, Doug, as you sit here today, how long do you think this demand environment will last?

Doug Becker | Chief Executive Officer

I think the high demand, like what we're seeing now, like when I go to GTC and there's 21 people trying to talk to me to sign contracts, I think that is going to be strong for the next three to four years. And then what's critical about our business is, the main data centers that are out there, and I think we might have talked about this before, the main data centers that are out there are going to look to us as a hub and spoke because they're going to want to capture those markets that were in, like the Dumas, like the Corpus Christi, Lubbock, these Tier 3 markets that we're going in. They need to have compute out there. So does the mobile operators. When we go to, you know, 6G, we're at 5G, we're going to 6G now. They need to compute out at what we call the eyeballs. So all that data is going to take a lot of fiber to get back, a lot of network, right? So they want to be able to own that network, and they want to own that customer. The best way to do that is obviously buy these many data centers everywhere, bring them back to the core, because to be honest with you, they're all going back to a core anyway. So it makes complete sense. So I think, you know, the growth is going to be very strong and extremely strong in the 3 to 10 meg range, Because right now, and I just did this exercise for another potential client, he needed two megs worth of power. Two megs, which doesn't sound like a lot nowadays, but it's a lot. I couldn't find it throughout the country in one data center. I'm talking about a legacy data center. So the market is looking past the need of the 10 to 15 meg data centers. And prime example, like Johnson & Johnson. They keep their stuff at a local data center. They go to like a QTS. They go to a Flex Central. That's where they house. They don't go to a hyperscale. They don't go to these big ones they're building. We're losing sight that the demand is there, and they're still growing. So I think you're going to see the market for the next five to ten years focusing on that 10 to 15 megawatt range. So we have a long haul, but we do have to build quickly.

Ed Wu | Analyst, Ascended Capital Markets

Thank you. Yes, sir. Tell the operator one more question.

Operator | Conference Operator

Our next question comes from the line of Tom Leonard with River Bay Investments.

Please proceed. Tom Leonard | Analyst, River Bay Investments

Hey, Doug.

Tom calling. Doug Becker | Chief Executive Officer

How are you?

Tom Leonard | Analyst, River Bay Investments

I'm doing great. You provided a lot of color on the GPU as a service, the economics, the revenues, that. I'm trying to think about the revenue exit run rate this year. And so, could you put a more color on the high density EDC, how many total megawatts, and what's the revenue value per megawatt for that high density co-location customer versus the, you know, lithium-ion GPUs that you purchased?

Doug Becker | Chief Executive Officer

Sure. On the GPU model, let me back up. The goal for this year is to deploy 25 megawatts. Now, that comes through, you know, 300 kW pods that we deploy right now. We have 15 of them on the ground at 300 kW. But the total megawatt, because that's what we're being judged by right now, everybody's being judged by megawatts, not by kilowatts or cabinets. So the plan is 25 megawatts. And when we look at the GPU model, For every megawatt, we're looking at $2 million a year in revenue. That's right on the head. That's what they're billing. That's what the industry shows. And that's what we're building to. So it obviously is a very strong model to house GPU for customers.

Operator | Conference Operator

Thank you. And with that, that concludes today's question and answer session. I'd like to pass the call back over to Doug for any closing remarks.

Doug Becker | Chief Executive Officer

Well, I'd like to thank everybody for joining today, and we look forward to speaking with you in Q1 earnings. Thank you so much for your time.

Operator | Conference Operator

Before we conclude today's call, I would like to provide Duo's safe harbor statement that includes important cautions regarding forward-looking statements made during this call. The earnings call contains forward-looking statements within the meanings of the Securities Litigation Reform Act of 1995. Forward-looking terminology such as believes, expects, may, will, should, anticipates, plans, and their opposites or similar expressions are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties. risks, and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based and could cause DUO's technologies groups actual results to differ materially from those anticipated by the forward-looking statements. These risks and opportunities include, but are not limited to, those described in the Item 1A in DUO's annual report on Form 10-K, which is expressed incorporated herein by reference. and other factors as may periodically be described in DUO's filings with the SEC. Thank you for joining us today for DUO Technologies Group fourth quarter and full year 2025 earnings call. You may now disconnect. jsPDF 3.0.3 D:20260606090111-00'00'

NASDAQ:DUOT Q3 2025 Earnings Call Transcript Generated on 6/6/2026 Adrian Goldfarb | CFO: Good afternoon. Welcome to Doos Technologies' third quarter 2025 earnings conference call. Joining us for today's event are Doos CEO, Chuck Ferry, myself, CFO, Adrian Goldfarb, President, Doug Recker, and Senior VP of Accounting, Leah Brown. Before getting started with today's program, please direct your attention to some opening remarks from Mr. Ferry. Thanks, Adrian.

Chuck Ferry | CEO

Welcome everyone and thank you for joining us. Earlier today, we issued our third quarter earnings press release. Copies are available in the investor relations section of our website. I encourage all attendees to view the press release to better understand some of the details we'll be discussing today. As part of our growth this year, we have changed the format of our quarterly earnings call from a standard conference call to a video-based presentation. We hope this new format will enable us to communicate better to our audience and give you better insight as to how our management team operates. I am very pleased with the results we will share with you today. Our team has been working super hard to pivot the business into the data center and power space, and now it's really beginning to pay off. I would like to make a few comments about what we're seeing in what I will refer to as an arms race for AI computing power. Everyone knows that the hyperscalers and large data center developers are moving as fast as they can to build data center parks, that are slated to consume at least 250 megawatts and growing to 2 gigawatts in some cases. This is an effort to monetize the incredible demand for AI computing. The number one thing that is limiting this growth is the lack of power. That's obviously good news for DUO since we have a 5% stake in APR Energy. The strategic problem set, however, is the shortfall of power generation assets that can be manufactured to meet the demand. This is causing the hyperscalers to begin to seek alternatives, specifically edge computing. Why edge computing? Because smaller edge data centers can be put in quickly, they consume much smaller amounts of power, no water, and in a distributed manner, which means they can connect to the grid and not material impact the local utility grid customers. Duos is perfectly positioned to address this demand, and we are in discussions with two to three large developers to address more strategic edge computing opportunities. Another supply chain pain point not as prevalent in the news, but just as important, is the procurement of smaller items such as fiber, medium voltage cabling, batteries, breaker panels, and backup generators. Large data center builders are frustrated with the long processing times of their traditional suppliers, which is why we have recently added key capabilities to our data center staff that are experts in this area so we can take advantage of this high growth opportunity, which would also diversify our data center offerings. I want to give you a reminder of what our strategy has been for the last 18 months and going forward into the next year. First, we are pivoting and focusing our resources into the edge computing space. We are now adding additional data center service offerings that will add even more value for DUOS beginning in the fourth quarter and for next year. Second, the revenues we earned through our asset management agreement with APR Energy, along with a 5% equity stake, have given us the financial ability to execute this pivot through our data center strategy. We do not, however, want to be reliant on the asset management agreement. as it will conclude in 2026, which is why we are adding additional data center offerings that we'll discuss later today. Third, we are actively working on options for the future of our rail car inspection portal business, which has remained largely flat for us. The end state for 2026 will be a standalone dual business that is profitable and 100% focused on the data center space with two to three diverse data center offerings and sources of revenues coming from it. Before getting to the results for Q3, I would like to formally announce some planned senior management changes. Adrian Goldfarb will formally relinquish his CFO role effective November 15th. Adrian has been our CFO for a second time since May 2024 and served his first tour as CFO starting in April 2015 when Duos became a public company until November of 2022. During this period, he led Duos through the successful uplisting to the NASDAQ in 2020. His most recent tour of duty has been to assist me with executing the strategy I just described. Over the past 18 months, we have accomplished a complete transformation of Duos with the establishment of Duos Edge AI and closing the deal with APR Energy and Fortress Investment Group. Adrian has been a good mentor for me, and I appreciate him teaching me the ropes on running a public company. Adrian has been a consummate financial partner for me, and he deserves everyone's thanks for our recent successes. I have asked Adrian to once again serve as a strategic advisor for another 12 months to ensure a smooth transition with his replacement and to help sustain the momentum we have now. Stepping up into the CFO role is Leah Brown, who has been our number two finance leader for the last three years. Leah had significant experience with other larger companies before joining us. Here at Duos, she has played a key role in leading our finance team to meet the complexities of managing three diverse lines of business. Congratulations, Leah, and I look forward to working with you in your new role. I would like to make a few comments regarding APR Energy. As has been previously discussed, I currently serve as CEO to both Duos and APR, and note that both companies have made significant progress this year. For DUOS, the asset management agreement has been a major success and contributor to DUOS's growth during this transition. During the next several months, APR, in conjunction with DUOS, will be establishing independent operations. While the short-term effect of this may be for DUOS to record less revenues in 2026 from the asset management agreement, Duos's growth in the data center market from the edge deployments, supplemented by new initiatives into that market, are expected to more than offset any lower revenues from the AMA. With lower overall costs and expected higher margins, we anticipate that Duos will record further growth in 2026, along with full-year profitability on an adjusted EBITDA basis. Leah and Doug will be commenting on our progress and growth plans in a moment. This concludes my formal remarks. And before turning the call over to Doug and Leah, I'd like to ask Adrian to give his perspective and closing remarks. My thanks again to all shareholders for your support. I'll be happy to take questions at the end of our formal remarks.

Adrian Goldfarb | CFO

Adrian. Thank you, Chuck. As was just mentioned, I will be retiring again from the position of CFO. Before I say farewell, I would like to give my perspective on where the company is today and how well I believe we are positioned for strong growth in the years ahead. In the past few years, Duos has invested heavily in both technology and operating capabilities. These strengths have allowed us to tackle complex projects and therefore positions us to capture many new opportunities. By the end of 2025, we will have deployed 15 of our edge data centers. achieved the highest revenues for a single year, executed multiple power projects, and began a push into the market for data center equipment to bolster our EDC business. As Chuck mentioned, I will continue to be engaged with Duos for the next 12 months, primarily to aid in the transition, and I plan to work closely with the senior management team to assist as necessary. I will be succeeded by Leah Brown, currently Senior VP of Accounting, who will assume the title of CFO effective November 15th. Leah has been the mainstay of the Duos financial team for the past three years, and has done an outstanding job of building out our capabilities and providing support for me as we navigated the capital markets in order to get Duos properly funded, which was achieved this summer. Leah will give her remarks now, including guidance. but I am pleased to report that with the actions senior management has taken over the last 18 months, we have achieved positive adjusted EBITDA for Q3, one quarter ahead of our projection. Congratulations to everyone involved in this milestone achievement. And with that, I will now ask Leah to give the financial report for Q3. Over to you, Leah.

Leah Brown | Senior VP of Accounting

Thank you, Adrian and Chuck. I especially want to express my heartfelt gratitude to Adrian for his leadership and many contributions over the years, and to share my appreciation as he prepares for his planned retirement. I look forward to continuing the strong relationship we've built as we move forward. Before presenting the formal financial report, I have a few opening remarks. In our last call, Adrian emphasized that the company's strategic pivot has positioned us in a completely different place compared to where we were this time last year. Working together with the management team, we've grown the business to a point where revenues for the first nine months of this year is already higher than any full year in our history. We are proud of this milestone. It reflects the strength of our strategy and sets us up for the continued growth and even better results in the years ahead. As Adrian mentioned, we've achieved adjusted EBITDA profitability one quarter earlier than originally anticipated. We continue to evaluate our cost structure across the three subsidiaries And during the third quarter, we implemented targeted staff reductions related to the rail business that are expected to deliver accretive benefits in the fourth quarter and beyond. As Chuck mentioned, we are restructuring the rail business and reallocating resources to further support the growth in the EDGE Data Center segment. Doug will share more details on the progress of our EDGE Data Center strategy. Keeping that in mind, I'll now share the results for the third quarter and first nine months of this year. Total revenues for Q3 2025 increased 112% to $6.88 million. compared to 3.24 million in Q3 2024. And for the nine months ended 2025, total revenues increased 202 percent to 17.57 million from 5.82 million in the same period last year. A significant portion of our Q3 2025 revenue approximately $6.59 million came from recurring services and consulting. Of this amount, $5.15 million came entirely from DUOS Energy's execution of the asset management agreement with APR Energy. Under this agreement, we manage the deployment and operation of a fleet of mobile gas turbines and related balance of plant inventory, while also providing management, sales, and operational support services to APR. Cost of revenues for Q3 2025 increased 88% to $4.36 million compared to $2.32 million for Q3 2024. And for the nine months into 2025, cost of revenues increased 143% to 12.22 million from 5.02 million in the same period last year. The cost of revenues for the technology systems continues to decline compared to the same periods in 2024. This is primarily because we've been able to reallocate certain fixed operating and servicing costs to support the asset management, something we couldn't do last year because the agreement was not in place. Gross margin for Q3 2025 increased 174% to $2.52 million. compared to 919,000 for Q3 2024. And for the nine months into 2025, increased 569% to 5.35 million from 799,000 in the same period last year. Gross margin improved. primarily due to DUOS Energy executing against the AMA, providing staffing and oversight of APR projects, including deployments in Mexico and Tennessee. This includes over $904,000 in revenue recognized during the three months ended September 30th, 2025. That was related to the company's 5% non-voting equity interest in the ultimate parent of APR, which carried no associated cost and therefore contributed at 100% margin. This also included 547,000 in revenue from deployment services. These revenues and related margin contributions were not a part of last year's results. As we've discussed on previous calls, increased business from the AMA has strengthened gross margin, and we expect additional improvements driven by higher profitability on work DUOS will perform for new APR. Operating expenses for Q3 2025 increased 28% to 3.63 million compared to 2.84 million for Q3 2024. And for the nine months into 2025, operating expenses increased 34% to 11.7 million from 8.7 million in the same period last year. The increase in expenses is mainly due to non-cash stock-based compensation related to restricted stock granted to the executive team on January 1, 2025, under their new employment agreements, which include a three-year cliff-vesting schedule. Overall sales and marketing costs continue to decline as resources are allocated to cost of services and consulting revenues in support of the AMA with APR. Research and development expenses decline by 28 percent, reflecting the completion of deployment and testing for prospective technologies. The company remains focused on stabilizing operating expenses by implementing targeted reductions where appropriate while continuing to meet the growing demands of our new businesses. Net operating loss for Q3 2025 totaled $1.12 million compared to a net operating loss of $1.92 million in Q3, 2024. And for the nine months ended 2025, net operating loss totaled 6.35 million compared to a net operating loss of 7.9 million in the same period last year. The reduction in operating losses is primarily driven by higher revenues compared to the same periods last year. largely due to DUOS Energy's revenue from the AMA with APR. Net loss for Q3 2025 totaled $1.04 million compared to net loss of $1.4 million for Q3 2024. The 26% reduction in net loss is driven by significantly higher revenues and a slower increase in expenses overall. This is because staffing costs are spread across a broader range of businesses, a trend we expect to continue. For the nine months into 2025, net loss total 6.64 million or negative 49 cents per share compared to a net loss of 7.36 million or negative 98 cents per share in the same period last year. In previous reports, we didn't include non-GAAP financials because they didn't provide much insight into our performance. At the request of several shareholders, Adrian has approved, and I agree, to start and continue reporting these financial results. For the first time, we're including EBITDA and adjusted EBITDA summaries, which will be disclosed in the MD&A section of our Q3 10-Q. For Q3, one quarter ahead of prior guidance, we achieved full quarter profitability on an adjusted EBITDA basis, totaling a little over 491,000. This figure reflects adjustments to our gap net loss of just over $1.5 million, including approximately $560,000 in depreciation and interest expense, plus about $969,000 in non-cash stock compensation, resulting in an adjusted EBITDA margin of 7%. We will continue reporting these metrics in future financial reports. I'm pleased to share that the company has achieved significant improvements on the balance sheet as of September 30, 2025. In the third quarter, as a result of our capital raises, we now have over $35 million in cash and short-term receivables. Conversely, in Q3 2024, we reported $6.7 million in cash and short-term receivables. This year-over-year increase marks a major improvement in our liquidity position, up approximately 422%. We also paid off all outstanding debt and master capital leases, leaving us with nearly $12 million in fixed assets with the EDGE data centers that are now being deployed as the primary component. Shareholders' equity now stands at nearly $50 million in Q3 2025, compared to just $2.3 million in Q3 2024. This strong improvement reflects growing investor confidence and positive sentiment toward our long-term strategy. As previously discussed, a significant asset for Duos is the equity investment in Sawgrass APR Holdings, the parent of new APR. Our 5% equity holding in this business continues to be conservatively valued at over 7.2 million and is expected to generate profits in future years as a profits interest structure. We expect the value of our equity holdings to continue to increase over the coming year. we've also seen a significant decrease in current liabilities from around 16 million at the beginning of the year to under 10 million as of this reporting period. As mentioned earlier, DUOS currently has no debt. Next, I would like to share an update on our backlog and pipeline. With expected revenues from managing and operating new APR energy, upcoming deployments of our EDGE data centers, and current as well as anticipated rail contracts, our backlog represents nearly $26 million in revenue. Of that, about $9.5 million or more is projected to be recognized in Q4 2025. In addition, we expect another four to five million in near-term awards and renewals, signaling continued growth and strong demand for technology solutions, which Doug will cover later in the call. As our business continues to grow, I'll keep providing backlog updates in future earnings calls. I'm confident in our 2024 guidance and in our outlook for 2026 and beyond. Sorry, in 2025 guidance. During our last call, we confirmed our annual revenue guidance and I'm pleased to report that we remain on plan. We expect consolidated revenue from our three subsidiaries to be between $28 million and $30 million. Having achieved adjusted EBITDA profitability in Q3, we're confident we can maintain profitability going forward. This concludes my formal remarks. Now I'll turn the call back over to Chuck for his commentary.

Chuck Ferry | CEO

Thank you very much, Leah. I look forward to seeing you take charge as a CFO, and I'd also like to introduce Doug Recker as the newly appointed president of Duos Technologies Group. As you know, Doug has many years of experience in the data center space and has previously served as a CEO and founder in two previous successful companies. I am very fortunate to have him with our team at this most opportune time. After successfully establishing our Duos Edge AI subsidiary, Doug is now turning his attention to adding a creative business in the data center market. As president of Duos, I have asked Doug to oversee the operational growth and transition as we de-scope some of our activities and replace these with new business opportunities in the data center market where we are actively growing our presence. I would like now to ask Doug to give his remarks on our plans for the future. Over to you, Doug.

Doug Recker | President

Thanks, Chuck, and welcome shareholders and analysts to participating on this call. Let me first introduce myself. I've spent the majority of the last 30 years working in the data center world. My experience covers both the co-location space as the founder of Colo 5 data centers, which was eventually sold to CoLogix, and more recently as the founder of Edge Presence, an Edge data center operator which was sold to Ubiquity. Although joining the DOIS team in 2024, I've had a relationship with the company going back a number of years, starting when DOIS was a client of mine at Colo 5. When DOIS created the rail car inspection portal, I assisted with the design and supply of the edge data centers, or pods as we call them. A key component of that solution Duos went on to install 14 pods providing critical computing capability for processing millions of images trackside in close to real time. Given the success of that concept, I approached Chuck and suggested that we expand this idea to serve over other industries with growing processing demands, especially in tier three and tier four data center markets. These organizations often rely on small, outdated, in-house data centers that are costly and inefficient. By deploying our modular edge data centers, we can now give them a scalable, on-grid, high-performance solution that dramatically improves compute capacity while lowering cost. A great example of this is our first deployment for Region 16 Education Service Center in Amarillo, Texas. Region 16 serves 60 school districts and three charter schools with 226 campuses in the Panhandle of Texas, mostly in rural areas, which previously ran their own data centers. By transitioning to our purpose-built Zero Water Enterprise SOC 2 module dual edge facility, they've improved performance, reliability, and uptime, all while cutting their IT budget and establishing reliable connectivity for the distance learning network. For DUOS, this site now serves as a micro data center for the broader region, supporting local carriers and creating long-term stream of reoccurring revenue. Now, what really positions us for the future is our newly granted US patent, the Intraway for a Modular Data Center. This is a major step forward in how modular data centers can operate and deploy and maintain. It introduces clean room level environment protection that keeps out dust, dirt, and moisture, a critical advantage in rural and harsh environments. Even more importantly, our design requires no water for cooling and operates fully on grid, which not only improves energy efficiency, but also supports sustainability and reliability. The entry serves as not only as a clean room to protect the hardware with the pods, but also the security man trap entry to the data center. Security in the data center is one of the most important features offered. Duos was able to incorporate all of the security requirements into the clean room design to allow a strict auditing standard needed for entry into the data center. This will ensure Duos to receive SOC 2 compliance and opens our sites up to additional customers in finance, healthcare, and many others. In essence, we're not just deploying data centers, we're building the next generation of mini-carrier hotels that will form the backbone of tomorrow's digital infrastructure. These facilities bring compute and network power closer to the end user, reducing latency, improving connectivity, and positioning duos to play a central role in enabling the AI-driven economy of the future. With that in mind, I would like to spend the remaining time discussing the current progress in the edge computing business and some new initiatives that are being developed to drive newest revenue growth in 2026 and beyond. The company has set a goal to have 15 data centers installed by the end of the year. While this was always a stretch goal, I am pleased to report that we are well on the way to accomplishing this with six in place today, four more to be installed this month, and the final five to be placed by the end of the year. I am pleased to report that in conjunction with the additional resources that we have put in place to support this growth, We have closed our first edge data center to be located outside the state of Texas and are beginning to address other states as well as add operation capabilities to support this expansion. The staffing addition includes operation, sales, marketing with the focus to specific industries such as the telecommunication and fiber companies and further IT technical support. These additional resources are largely funded by already implemented cutback in the other Duos markets, notably Grail. Turning to the long-term growth of Duos, I'm conscious, although the AMA, well, APR has been a huge success and very much assisted us with all the pivotal pivot to the data center market, we do not expect to rely on this in 2026 for our growth. As Chuck mentioned in his introductory remarks, APR is moving to establishing its own operational platform. This provides a number of benefits to Duos, namely that we can begin to focus on additional markets within the edge data center space and other related revenue sources. With that in mind, I am pleased to announce that our Duos technology company is in the process of hiring a team and has begun to seek business opportunities as expansion of our effort in the overall data center market. As you are all no doubt aware, there is a major push for the largest companies in the U.S. to invest significant amounts of capital building out data centers, services, expected demand, AI, and the associated processing of data related to that. Our newest business will be called Dualist Technology Solutions. It will operate as a strategic sourcing partner, and its goal is to provide infrastructure, equipment, service to these companies looking to scale up. Duos technology solutions will provide fast, flexible, and tailored approaches to servicing its customers with key manufacturing partnerships, unprecedented industry knowledge, and unmatched customer service. By bringing products and procurement in-house for both internal consumption and for resale, we expect to leverage the vendor relationships into a significant growth opportunity for Duos as well as higher margin potential well as early stages for those efforts. We expect a fast start with new opportunity, including contributions to revenue beginning in this quarter. I expect to have more commentary on the progress of this new line of business in the next few months. But just as a teaser, we are already active, have secured relationships with multiple manufacturers, customers, some of which we announce in the next coming weeks. In conclusion, our business commercially and financially is in a position to take advantage of the ongoing demand coming from the data center growth driven by expected need for the data center processing and high-speed communication. As we transition from our single industry focus on rail to a broad range of solutions in the edge computing and now mainstream data center business, I expect to report on a series of improved financials with sustainable profitability and thank our business partners, institutionals, and retail investors, board of directors, and our long-term shareholders for their continued support. The outlook for Duos continues to look very promising, and I'm honored to be chosen to lead it going forward. Thank you for listening, and we'll now open the call for questions.

Adrian Goldfarb | CFO

Thank you very much. That concludes our formal remarks. We will now be open for questions, and once we have the first question, we will repeat that question and then sign appropriate answer. Okay, the first question's coming in. How is growing demand from AI and cloud customers affecting your business? Are you noticing any changes in what customers need or the size of the deals?

Chuck Ferry | CEO

Yeah, I'll start and then I'll let Doug clean up. The growing demand from AI and cloud customers is affecting both Duos and APR Energy in just a fabulous way. Obviously, we're engaged with a number of hyperscalers, data center developers. All of them are calling for more computing power. And again, as I said earlier in my comments, what we're seeing is the large hyperscalers are going to be challenged to find enough power to scale out their large box data centers at the scale they really want. And so they are seeking those alternatives. And that's why I made those comments about the edge and turn it over to Doug as it relates to our duos.

Doug Recker | President

Right. That's great. The core really what we're doing is we're building out the network infrastructure in these tier three and tier four markets that don't have the connectivity, don't have the peering to actually make these AI applications work. for them to feel and be able to use the apps and to be able to use true AI, they need a better, more robust network. So we're building the infrastructure, the core to make that happen for the future. So when we go into a market and we drop a pod, we drop a 15 cabinet, 300 KW pod, our goal is to bring the carriers in with the customers. So as the carriers come in, they cross-connect, they start to peer, you build that big infrastructure out in that market, and then you lock that market down. So everybody basically will come to you to cross-connect to get access to that network.

Chuck Ferry | CEO

doug for us non-data center experts when you say those tier three tier four markets we're really talking about underserved rural markets that just don't really have the access to the the the the data like like correct correct yes and in those markets let's just say a corpus christi or lubbock or amarillo texas in those markets they they it doesn't make sense to build a 30 or 50 million dollar Doug Recker | President: uh... carrier hotel or data center what does make sense is to build modular and when you build modular out you build the nucleus you build that first power and network facility out and then you grow from there so what our plan is we deploy these we bring that main carrier connection point and then you put pods to it when you add more pods you add more customers so you can grow those pods and build basically uh... as much as much network as you want uh...

and Adrian Goldfarb | CFO

and take it down as the customers need it perfect thanks doug okay very good um the next question uh you reported a 112 year-over-year revenue increase and positive adjusted ebitda this quarter Can you elaborate on what drove this performance and how sustainable this trajectory looks heading into 2026?

Chuck Ferry | CEO

Yeah, I'll take that one. Like, based on Leah's comments, we've been very fortunate this year to have gotten into the deal with New APR Energy and Fortress Investment Group. That's our asset management agreement where the duo staff that has a lot of expertise and former folks that have worked at APR has been commercially striking contracts, maintaining and deploying those assets, and then operating and maintaining them on the site. So APR has had a terrific year because of the demand and power, and that has resulted in us hitting the revenue projections that we expected for the asset management agreement. Like I said, though, I want to reiterate, all of us here at Duos recognize that the asset management agreement's a two-year agreement. And so we're already pretty much through the first year, and we determined probably about the middle of this last year that, hey, we need to make plans such that when the asset management agreement ends, we'll be able to replace that with meaningful revenues, a mix of revenues, and we are confident that But that's going to come not only from the edge data center businesses as deployments grow, but also from some of this new infrastructure business that Doug's kind of given us a teaser about. So we remain highly confident that we'll finish this year in the guidance range that we talked about. And next year will be even better and more profitable.

Adrian Goldfarb | CFO

Very good. Next question from a shareholder. You've highlighted progress toward 15 edge data center deployments this year. Can you update us on the current progress and timing for the remaining installations? And are there any constraints on the supply chain? Yeah, I'd love to take that.

Doug Recker | President

So yes, so we're actually hitting on all cylinders. So we have six of them on the ground. We have four of them actually coming off the factory this month that are going straight to the site. And then we have five more coming off the factory at the end of this month in early December. They're all allocated to go to specific markets. where the pads are being poured. So we're on track. Actually, our funnel is a lot deeper than that, but we didn't want to push it, so we're hitting the 15. And as far as procurement of our product, what's great about the niche that we're in is, like I said earlier, these pods are 300kW. So they're not 2, 10, 15-meg pods. So almost everything that we put inside this pod is, I want to say, almost off the shelf. Our lead times aren't that long. So getting into a market, deploying the pod is a lot easier when you're going after 300 kW instead of going after 10 meg. And so everything that's being built, all the infrastructure inside these pods is pretty quick turnaround. So we're lucky with that.

Adrian Goldfarb | CFO

Great. Next question comes from an analyst. With your new modular data center patent now granted, how does this technology enhance your competitive advantage, and how do you intend to monetize it? I guess that's for you.

Doug Recker | President

Yeah, I would love to take that one. We worked real hard on that. It's your invention. Yeah. We worked real hard on that patent. So it's a wonderful piece. So basically, what we've learned over the years of deploying tons of these pods, what you'll find is over two years, three years, The pressure is so strong inside these pods, so you're putting 90 ton of cooling in 200 square feet. So when you open the door, it pressurizes, but it does bring in dust, especially in these harsher environments. And what happens over time is those servers, you start to notice they're getting dust on those servers. And it depends on which market they're in. Texas is very, they have a lot of dry, So what will happen is those Dell servers, those Cisco routers, all that stuff will start getting dust on it and they start saying, well, we're not going to honor their warranties because this is not natural. So what we've done is we've created basically what's called a clean room. So when you open the first door, you walk into the pod and it cleans basically everything off you. Air blows, it filters the air and it runs for about 30 seconds and then a green light will come on and it lets you know you can open the next door. But inside that clean room also works as an auditing standard. So we know who is in the pod, it has the AI where it comes down on the customer, and it realizes that that's a backpack on their back, not another person. So that's why when we get our SOC 2 audits on all these pods, we can do financial, we can do healthcare. You can't do that in a pod with anybody else. Without having this room, I don't know how you're gonna compete in these markets. Especially nowadays, a cabinet can be $2 million worth of gear. So customers want that clean environment, and now we can provide that with that patent.

Adrian Goldfarb | CFO

Very good. Next question is, how is growing demand from AI and cloud customers affecting your business? Are you noticing any changes in what customers need or the size of the deals?

Chuck Ferry | CEO

So I think this is kind of a repeat question, but Doug, maybe we can just talk about the size of the deals, right? We're talking, you know, initial deals are kind of smaller. with the Texas school regions, but just maybe a flavor. We don't want to give away too much, but some of the larger deals that we're kind of talking about.

Doug Recker | President

Sure. Yeah. So obviously our core businesses, to launch into these tier three, tier four markets and to build the infrastructure out. So we obviously partner with the school systems in that area and the healthcare providers, the hospitals. But as you're building out that core infrastructure, remember the key here is you're bringing the carriers in and now there's multiple carriers in your pod. And what happens now is hyperscalers or anybody that actually wants to compute can come out and piggyback against these pods. So prime example, say somebody needs five meg We can actually build a 5 meg, two pods, 5 meg in 120 days and deploy that a lot quicker than you can deploy a 30 meg site. So what we're seeing and what we're getting interested in, the calls that we're receiving are, hey, can you do 5 meg here? Can you do 5 meg in this town? So they're actually starting to disperse because they can deploy this power and these pods in about 120 days. So we're actually actively looking at an application now.

for that need. Adrian Goldfarb | CFO

So this will be the last question. Excuse me. Where are you prioritizing your target markets for edge deployments and what factors guide your regional expansion strategy?

Doug Recker | President

So really the proof of concept was the education sector, and we started out in Amarillo, Texas, and it actually, our great partners at Region 16 helped us educate the market, help educate the state. So we're very excited to announce we actually have our first contract outside of the state of Texas, which is in Illinois. So we're going into Illinois here now. And what's driving that is basically a lot of the education sector because they want that connectivity, especially in the outskirts, you know, the markets, the tier three and tier four markets. They want to have better access to AWS's platform. And what's happening there is, once again, you're creating this this peering, you're creating this better network because even the folks in Tier 3 and Tier 4 markets use the same kind of bandwidth and the kids and everybody are using ChatGPT, they're using Snapchat, they're all using the same thing. Everybody else is in Tier 1 markets. So this is actually helping those providers as well.

Adrian Goldfarb | CFO

Okay. At this time, this concludes our question and answer session. I'd like to now turn the call back over to Mr. Recker for any closing remarks he may have.

Doug Recker | President

Thank you all for joining us for the Duos Technologies Group third quarter 2025 earnings call. Any unanswered questions from the Q&A participants will receive feedback via email. We now conclude today's earnings call. You may disconnect. Thank you. jsPDF 3.0.3 D:20260606090114-00'00'