Good afternoon. Welcome to Duos Technologies Second Quarter 2022 Earnings Conference Call. Joining us for today's call are Duos CEO, Chuck Ferry; and CFO, Adrian Goldfarb. Following their remarks, we will 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'd like to turn the call over to Duos' CEO, Chuck Ferry. Sir, please proceed.

Welcome, everyone, and thank you for joining us. Earlier today, we issued a press release announcing our financial results for the second quarter as well as other operational highlights. A copy of the press release is available in the Investor Relations section of our website. I encourage all listeners to view that release as well as our 10-Q filing with the SEC to better understand some of the details we'll be discussing during our call. Now let's get started. In the second quarter, we executed really well across all segments of our business and are tracking according to our long-term growth plan. Our financial performance in Q2 represent an order of magnitude improvement over our results in recent reporting periods, as well as the third consecutive quarter we met or exceeded our internal revenue projections. We improved demonstrably in nearly every meaningful financial metric, which is not only the result of executing certain deployments ahead of schedule, but also byproduct of the foundational work we've done in the last year and a half to be able to execute a greater scale when the opportunity was presented. Based on our performance to-date, we remain on plan to meet our financial goals for the year. Operationally, we have currently -- we currently have two railcar inspection portals, completing installation in the next three months, with two more portals that are under construction and expected to install in the first half of 2023. We were also completing installation of two other projects in the third quarter. We continue to improve our installation procedures in Field Performance and Maintenance capabilities, all of which have enhanced customer relations, leading to increased recurring revenue and add-on sales opportunities. We will discuss more details about the business later on the call. So before I go any further, I'd like to turn the call over to our CFO, Adrian Goldfarb, who will walk us through the financial results for the quarter and first half of the year. Adrian?

Thank you, Chuck. Before my comments on the financial results, I would like to mention that I see very good progress across all the functions of the business, from contracting to engineering, software development, and manufacturing, installation and service. In particular, our AI development has made major strides. And all of this leads to the current improved financial results, and expected continued improvements for the rest of this year and beyond. Turning to the results for the second quarter ended June 30 2022. I want to discuss the two components to revenue that we report. Technology Systems, which records revenue from turnkey engineered systems such as our railcar inspection portal, and the increasing impact of our recurring revenue from services and consulting. This records recurring revenues from maintenance and support contracts about technology systems, and AI models, plus any consulting services that are undertaken. As previously discussed, we have been upgrading and expanding our overall technology capabilities with a particular focus on AI as a key component of our overall product portfolio. I'm pleased to report that our average revenue for installation continues to move higher as a result of meeting the demand from our customers for increased functioning capabilities. While supply chain issues have started to show some signs of improvement, time between contract award and full revenue recognition remains longer than was the norm in prior-years. At this time, we still expect to see higher revenues later this fiscal year and into 2023. In addition, we continue to focus on our revenue mix to support accelerating growth in our recurring revenue services and software going forward. With respect to the results just reported, total revenue for Q2 2022 increased 458% to $3.62 million compared to $649,000 in the second quarter of 2021. Total revenue for Q2 2022 represents…

Thanks, Adrian. Those who follow us those -- those who have followed us know that I've been very direct about challenges our company has worked through the last 18 months. Now I am pleased to report that our Q2 results for the third quarter in a row, we have met or exceeded our internal financial metrics. Additionally, Q2 represents the highest single quarter recurring revenues in the company's history. We will continue to emphasize growing that portion of the revenue at a greater rate going into next year. As a reminder, our 2022 operating strategies focused on five key areas as follows: one improve our technical and operational delivery, which will make satisfied customers with more equipment and services; two, add more recurring revenue through our services, maintenance and artificial intelligence offerings; three, continue our primary commercial focus in the rail sector, adding more value to existing customers, adding new customers in the Class 1s passenger rail, and we'll discuss car owners themselves a little bit later in the brief. Add a second commercial line of business in the trucking intermodal industry and potentially into the aviation industry by using our railcar inspection portal technology to conduct similar visual inspections of trucks and aircrafts, focusing on recruiting and retaining top talent in a very competitive market space. I'll now add further comments to each of these five major components of our strategy, beginning with improving our technical and operational delivery. Since my arrival in 2021 of the core components of our updated company values has been a commitment to achieving operational technical excellence. We believe this approach leads to higher customer satisfaction and improve new deal closure rates. From a high level, customer service continues to improve. And we have successfully met our service level agreements with all of our…

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from line of Mike Latimore with Northland Capital Markets, please go ahead.

Great, thank you. Yes, Chuck, Adrian, congrats on the strong growth and gross margin spending here. Great to see.

Thanks, Mike. Good to hear from you.

Yes, likewise. So I guess just one kind of modeling clarification, I think, Adrian, you said that you expected third quarter revenue to be up sequentially? And then similar fourth quarter by similar fourth quarter, did you mean in absolute dollars or in growth rate sequential revenues?

In absolute dollars.

Okay. So basically third quarter and fourth quarter should be about the same?

At this time, yes. That's what it looks like.

Got you. And you also mentioned gross margins should continue to improve with the higher volumes?

Yes, that's a little bit of a dual edged sword right now, because of the supply chain, and even more, so now, the impact of inflation. Obviously, we contract for these systems quite a bit ahead of time. And inflation is now something that we have to take very, very seriously as we go and negotiate contracts. So it's a question of being able to secure the materials in sufficient time to deploy them so we can record revenue, but also not overpaying for those. And we see the inflation really across the board, it's in terms of materials, in terms of staffing, third-party contractors. So that's where all things being equal, we do expect as the volumes grow to have a increasing gross margins, but we'll have to, we have to play that carefully with the impacts of inflation.

So Mike, this is Chuck. And basically, what we're in the process of doing constantly is attempting to keep our supplier and vendors obviously, we're negotiating the best price that we can with them, but prices are going up. At the same time, we're engaged with all of our customers to try and get price increases to cover that -- to cover that. So it's a constant going back and forth as we're going through these quarters.

Makes sense, makes sense. Looks like your pipeline grew 20% or so sequentially? What was kind of the big driver of that?

Yes, I think the again, our pipeline is largely broken into three, three main components. One is Class 1s, the second major component is transit and passenger rail. And then we'll call things that are other, we have had some, we talked about, we've been able to analyze our data a heck of a lot better. What we've realized is that we can, we're actually, many of the rail cars that we are scanning, and with the imagery attached to it is actually owned by car owners. So part of that pipeline involves actually selling into the car owners themselves. And we think that that may be a future area for us to sell in what we'll call a subscription manner, where we're really selling subscriptions to our data versus actually selling rips themselves. So that's something that we're developing right now in concept. We're in conversation with several of the car owner companies, which are quite large. And we should have some more to report on that, I think in the next earnings call.

Interesting, okay. And that did contribute to the pipeline growth?

Yes, yes, there is a good component of our pipeline, which is actually the car owners. And I don't want to start off with her name, some are very large publicly traded company. So you can look them up.

Yes, okay. And then I think you also talked about an 18% sequential increase in detections I believe, I might have missed in the basket, have you given that number before?

We have not, not in this forum. So again with our significantly improved software and artificial intelligence teams, their ability to evaluate and analyze the data that we have, it has become significantly better. So, we've now begun to track the analytics of the actual imagery and detections that we're taking and we'll keep track we'll keep track of that, and kind of report out here on a go forward basis. Again, we have 11 railcar inspection portals out in the field now. And so we're able to now see and track kind of the numbers going through that by early queue by early 2023, we will have a total of 14 or so portals out. And so those numbers will actually increase.

Yes, that's encouraging. Okay, so the AI is taking in nicely there. Great, well, I appreciate it. That's all I need. Best of luck rest of the year.

Thanks, Michael.

Thanks, Michael.

Thank you. [Operator Instructions] Our next question comes from the line of Richard Jackson with True North Financial, please go ahead.

Yes, great progress. I'm trying to get my arms around this model and through some data points, I think could be helpful, and I'll make sure I'm understanding them correctly. So what's the difference between an AIU and a portal?

That's a good question. Thanks, Richard. So obviously, our railcar inspection portal is basically a large coverage of all the sensors that captures all of the data. And then what we do through a set of software and what we'll call artificial intelligence, we analyze that data and present it to the customer. So when we use the term artificial intelligence, it's basically taking images. And it's analyzing mostly pattern analysis in those images. So when we use the term, artificial intelligence use case, we actually deploy use cases into the field. And what I mean by that a use case is a combination of a training set, which means a set of images, both good and bad, that's used to train the algorithm. The algorithm itself is a set of software and logic that takes those images. And basically, when you match the two together, and you deploy it out into the edge, we call it a use case. And hopefully I'm answering that question, Does that makes sense?

I think so depending on the next answer, so this quarter that generated $800,000 of recurring revenue, how many portals are up and running generating that revenue?

Yes, we currently have 11 portals that are deployed out into the field. And right now as we speak, we're actually in the process of installing an additional four. So I think I misspoke before. So we've got 11 now, and by the end of this year, we'll have 13 and by early 2023, we'll have a total of 15 out in the field.

So I take it, there's more than one AIU per portal, or am I not getting it?

Yes, so what we do is we deploy so currently right now with two of our customers, we have a total of 20 algorithms, or you might hear them called 20 AI use cases, they're deployed effectively, what we're doing is 20 of the mechanical inspection points are looked at through in an automatic manner using this AI. And we're continuing to build upon that as we go.

Okay, so you're testing now 20 stress points and you'll be testing for 28, is that what you're saying?

Yes, basically. So when depending on our portals, what our -- we'll call it our base generation portals. We can see anywhere from about 20 to 25 individual mechanical inspection points on each single railcar. In the case of two of our customers, we've deployed 20 algorithms, where as we're looking at those individual mechanical inspection points, the system automatically flags any detections that we have through that artificial intelligence, which effectively can either automate it, or it helps the customer make a much faster decision about what to do and how to action on that individual inspection point, if that makes sense.

I think so. So I'm trying to get my arms around the total addressable market here. So I think you said on a prior call the notes in front of me there were over 400 locations that would benefit from these portals, correct?

Yes, what we said before is that we believe and we -- and through our research, our total addressable market, we think the North American, North American Class 1 railroad network could accommodate as much as 150 of our railcar inspection portals. Again, separate from that is artificial intelligence. So each time we deploy an algorithm, it comes with a bit of a development fee, but also, more importantly, a recurring revenue component to it. So as we add more artificial intelligence algorithms, our recurring revenue increases, which is why when we are talking about increasing the amount of algorithms from 20 to 28, as we increase those numbers of algorithms, increase the number of customers that will pay for those algorithms, we're effectively adding to that recurring revenues.

Okay, so I believe you said two portals just got up and running. So 11 portals contributed to the $800,000 recurring revenue in the second quarter. Is that accurate?

Yes, the artificial intelligence definitely contributed to the recurring revenue in this last quarter. And to clarify two of our major customers across three of our portals, we're currently in contract to deliver. And we are delivering that artificial intelligence. We have a three additional customers that we're in discussions with, that we'll be adding artificial intelligence into later this year. And that will again bolster that recurring revenue.

So is it safe to assume that as you add to the AIUs, the recurring revenue will increase with it because you're adding more value?

Yes, that's correct.

Okay, thank you. You've been generous with your explanations.

Thank you very much.

Thank you. As there are no further questions, I would now like to hand the call back to Mr. Ferry for any closing remarks.

Yes, again I'd like to thank everyone for joining us today. And as always, we appreciate the opportunity to present. Thank you very much and back to you, operator.

Thank you. Before we conclude today's call, I would like to provide Duos safe harbor statement that includes important cautions regarding forward-looking statements made during this call. This earnings call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking terminology such as believes, expects, may, will, should, anticipate, plans and the opposite or similar expressions are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performances or events and are subject to a number of uncertainties. Risk and other influences, many of which are beyond our control, which may influence the accuracy of the statements and projections upon which the statements are based and could cause Duos Technologies Group, Inc.'s actual results to differ materially from those anticipated by the forward-looking statements. These risks and uncertainties include, but are not limited to those described in the item 1A in Duos Annual Report on Form 10-K which is expressly incorporated herein by reference, and other factors as may periodically be described in Duos filing with the SEC. Thank you for joining us today for Duos Technologies Group 2022 second quarter conference call. You may now disconnect.