Good afternoon. Welcome to Duos Technologies Second Quarter 2025 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.

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

Thank you, Chuck. As usual, before covering the specific results for the second quarter, I will discuss the state of the company and the transformation that we have undergone in the past 15 months since I returned as Chief Financial Officer. At that time, Chuck expressed his desire to put the company on a different trajectory. He asked me and other senior leadership to work as a team to identify ways in which we might direct the considerable talent that had been assembled to redirect available resources, specifically financial, operational and technical, such we might put Duos on the path to significant growth and profitability. During the strategic planning that has led us to where we are today, we recognize that despite the outstanding achievements we had made in developing the technology underlying the Railcar Inspection Portal, the speed at which the rail industry would adopt our solutions and as a small company, our ability to influence the industry seemed as if the time it might take and the financial resources needed might not be compatible with providing the returns our shareholders are expecting and shareholders whom I should say have been extremely supportive. The management team under Chuck's leadership, identified that we needed to diversify the business into at least two distinct businesses where the existing personnel had the skills and talent to rapidly undertake such a transition and make it successful in a relatively short space of time. Chuck has previously discussed the thinking behind teaming up with Fortress Investment Group to pursue a multi-hundred million dollar purchase of gas turbines for power generation, resulting in an estimated $42 million contract for Duos to operationally manage those assets as well as a 5% stake in the New APR entity, which we expect to be very accretive to shareholder…

Thanks, Adrian. As you can see from Adrian's commentary, the business has made good progress since the beginning of the year. Let me add some additional details to my opening remarks. With our Edge Data Center business, which we'll refer to as the EDC business going forward today, we have now fully commercialized our first EDC in Amarillo, Texas, which now allows us to confirm our financial assumptions around installation costs and recurring revenues. Currently, we are simultaneously installing the next 5 EDCs in Victoria, Corpus Christi, Waco and Dumas, Texas. An additional 4 EDCs will come off the manufacturing line starting in mid-September and go straight into additional Texas sites. We have now ordered another 5 EDCs along with backup generators and expect to install those starting in November. As you saw in our press release this morning, the expansion of our strategic partnership with FiberLight, a leading provider of high- capacity fiber optic networks nationally has really helped us accelerate our commercial pipeline in Texas. To reinforce the success of the EDC business, we will be adding more data center expertise to our staff, our management team and our Board of Directors in the coming 2 months. Again, now that we have all the ingredients in place, commercial demand, capital and execution know-how, I fully expect to accelerate the Edge Data Center business as we have discussed and more. As Adrian and I discussed earlier, our asset management agreement with APR Energy has been outstanding this first 6 months. Our team has assisted APR in deploying approximately 550 megawatts in the 6 months since the deal closed. Watching our team install a 150-megawatt fast power plant in Mexico in 35 days flat was a reminder of the quality of the team we have assembled. The team has also…

[Operator Instructions] Our first question comes from the line of Nico Sachheti with RBC Wealth Management.

Congrats on the progress here. Just had a couple of questions. So can you give us what the fully diluted share count is right now? So you executed on the 40 million secondary, but you also did another 12.5 million at the market. So can you give us an idea of what that number is now?

Yes, I'm happy to answer that. It's exactly $25 million -- 25 million shares at this point.

So that includes the convertible that's out there for like 4, 7...

Every single share that you can count, Yes.

Fully diluted 25 million.

Okay. And then can you give us an idea of what it looks like maybe on a per share basis for what this noncash stock-based comp was that you're referring to that kind of throws off the apples-to-apples comparison from a year ago?

Yes. Basically, the noncash comp is about -- it's roughly about $1 million a quarter. I'm just looking at one of my analysts here just Yes, about $1 million to take $1 million, divide it by 25 million, that will give you the answer.

Okay. Would you ever consider posting a non-GAAP earnings number just with some of these moving parts here just to try to make the situation a little bit more clear when we're trying to compare the year-over-year numbers?

Sure, Nic. That's a very good question. So traditionally, we have not used non-GAAP financials. We have talked about it. Sometimes we will discuss them outside of formal financials. And part of the reason we haven't done it in the past is up until now, there wasn't really that much to report on particularly recently. But also, there's more disclosure when you go into the -- when you put non-GAAP financials are. So yes, we will consider doing that in the future.

Is the -- are these -- the noncash items and the higher commission, I mean, are those truly a one-off? Or are those something that you'd expect moving forward with what the new business looks like here?

All right. So you have to divide it into two areas. There's the noncash.

No, I just meant moving forward, are these items that you'll expect to be more frequent? Or were these truly a one-off here?

Yes, that's what I was saying. So the commissions and bonuses related, it's really a timing issue were related to the APR deal, which was quite a complex deal. That is truly a onetime. There won't be any recurring on that.

Okay. So you gave the cash at the end of the quarter. Can you give us what the actual cash is now with the ATM and the secondary here?

Sure. It's just a hair on the $40 million.

$40 million. Okay. And then do you have anything left on the ATM now?

The ATM is terminated, and we'll probably be putting a statement out on that in the next few days.

Okay. And then Chuck, you talked about getting kind of some proof of concept here on what the recurring revenue picture looks like. Can you give us any information on like what an ARPU number will be on each one of these data centers? I mean, is it something that is uniform where there's a decent average to be working off? I mean, obviously, what I'm trying to figure out here is just back of the napkin, you get 15 of these this year and then another 50 next year. What does the revenue and profitability picture look like off of that segment of the business?

Yes. The -- all in, we spend around $1.2 million to $1.4 million to install a pod that's all the way from getting it manufactured and getting it into the ground and lit up. Once that happens and it's fully commercialized, where we now have our first one now in Amarillo and 5 more going in now. We're expecting and we're seeing proof points now that each pod should earn around $350,000 and potentially as high as $500,000 on an annual basis. That's kind of the unit economics. So again, the proof points we're seeing coming out of Amarillo that confirm our business case where ultimately we want to build out 150,000 or more of these. And so that was an important set of proof points for us that now allows us to be very confident about our go-forward projections.

Yes. No, the -- also the free cash flow on those units after year 1 is expected to be around $300,000 per year.

So let's call it maybe $400,000 million in change annually off of each one of these things. So maybe we're pushing high $20 million to $30 million of revenue off of 65 million of these. And then -- yes, I've heard this number 150 million a few times. I mean that's obviously not formal guidance, but the plan is to get 65 of these out by the end of 2026. And then when you say 150, is that just kind of a, we'll call it, a multiyear time frame end goal? Is that the end goal? Is that a midpoint? I mean, just anything there?

Yes. So our plan this year is to finish the year with 15 installed. The plan next year -- by the end of next year, 2026 is to have at least 65 installed on -- by the end of that year. And then subsequent year, 18 months, we want to get ourselves up to 150. So one of the proof points that we're working through right now is we're simultaneously installing 5 of these right this moment. So -- and it's going pretty well. So I feel pretty confident. Right now, the commercial pipeline will absolutely support those numbers. What's most important for us right now is to prove to ourselves that we can execute 5 or 6 of these things at the same time, which we're doing right now. And that will actually facilitate that growth where we can actually execute to that and realize the financials that come off of that.

So it wouldn't be outside the realm to say by the midpoint of 2028-ish that you've got 150 of these out in the fleet, maybe putting up $60 million in revenue based off the metrics you've given me here?

Yes. I think that's very, very possible based on what we're seeing, yes. -- and now that we have the capital on the balance sheet, we can do that, and we're moving to it now.

That was my next question is with the sizable secondary here, you feel that's an appropriate level to at least get, let's say, the $65 million up in cash flowing and then that sets the stage to build the next x amount of these. So it's not -- I guess I'm asking around the question of if you feel like you have an appropriate level of cash now, capital on the balance sheet to execute all the way through $150 million of these by mid-2027.

The answer is yes. I do not anticipate having to raise more equity capital. We have what we need right now to execute that plan through 2026. Obviously, we'll use the capital that we raised our own working capital that we're going to generate through the asset management agreement and other sources. And then once we get to that point, we're now capable of, if we want to taking additional capital down in the form of debt with the idea that we don't want to dilute our shareholders any further.

Sure. Okay. And just from a timing standpoint, so it's $1.2 billion to $1.4 billion to procure one of these things. And then is it how many months or so to where it's delivered and actually up and running and cash flowing to you guys?

Yes, that's a good question. So from the time we order an Edge Data Center, it takes us about 90 days to have it manufactured and delivered to the work site. And then once it's delivered to the work site, it takes us about 2 weeks to install it. So it's a fairly simple install for us. And then there's probably another month or 2 to fully commercialize it because we're bringing in multiple customers into that colocation facility, both fiber and fiber providers and carriers, along with normal customers will take down each cabinet [indiscernible].

I was just going to add to that. Just if you're going to model this out, they vary from -- sometimes you'll start with an anchor tenant. Typically, it's 3 to 5 cabinets. But we have other examples, one we're working on right now, where basically the data center is full day 1.

And then from a revenue structure, so you own it as an asset on the balance sheet, and this is something that the customer is leasing from you? Or what does that look like?

Yes. So yes. So basically, we own and operate the colocation facility. So yes, it's an asset on the balance sheet. Customers basically lease cabinets or cabinet space where they install their servers and GPUs and we're basically providing a hotel or colocation facility for various customers' IT equipment.

Okay. So it's truly a recurring revenue model. Is it? Can you give me an idea of what a rough gross profit margin will be once these things are up and running?

Yes. It's typically the...

[indiscernible] Would be -- sorry, yes, go ahead.

Yes. No, absolutely. It's targeted at in the mid-70s, low to mid-70s for gross profit. And then the unit economics EBITDA is targeted to be in the kind of just above 50%.

Our next question comes from the line of Richard Jackson with True North Financial.

Exciting development. Help me out here on the revenue you're reporting. If you own these data centers and you're paying for them, where is the revenue coming from? Who's -- help me out with that.

So again, we obviously procure, own and then maintain this colocation facility. Each Edge Data Center acts as a colocation facility. Inside each data center, you have 15 large cabinets. And so what happens is customers effectively come in and lease power space as well as cross connects in each of those cabinets. So in each of these things, you've got multiple customers. It includes carriers, people like Verizon, AT&T, FiberLight that are bringing the actual connectivity to the colocation facility. And then you have additional customers in our case, where we have like Region 16 has cabinets in there, Amazon Web Services has space in there and then other similar type customers from that community or inside that data center, basically all paying rent, and that's where we make those recurring revenues.

Okay. So I want to make sure I'm doing the math here right. So when you say you reported $5.8 million, and let's leave the railroad business to the side, unless I shouldn't, your collecting -- let's just say question about how many have up and running now, 7, 8, 5?

No. We currently have one Edge Data Center fully installed and has just begun producing revenue. So the large majority of our revenue, and you'll see it in the transcript, the largest majority of our revenue is coming from the asset management agreement, where we're providing those services to APR Energy. As we begin to finish additional installs and that recurring revenue will build over time. Hopefully, I got that right.

I'm saying inside of my head, you guys are burning about $1.3 million to generate $300,000 to $500,000 annually. Is that about right? You spend about 2.5x in annual revenue?

You're speaking about the Edge Data Center. So the loaded cost of putting an Edge Data Center initially was about $1.4 million. Now we -- that was the first one that we did. We've now rationalized and gotten some economies of scale on that. So that number is probably going to drop a little bit maybe to $1.2 million. And yes, you're going to generate on that first year about $300,000 to $400,000 depending on whether they're full to start with or whether you're ramping them up and so forth. The question is, though, after that first year, typically, these things are on very, very long-term contracts. 5 years is very typical with 5-year extension. And in some cases, where the carrier is involved, you're talking about 10 years. So after that, you've already spent the money. The G&A is very low. It's a relatively inexpensive business to run. And so you're generating about $300,000 in free cash every year thereafter.

Okay. So the way I'm envisioning this and tell me if I'm saying it the wrong way, is that when you guys have 65 of these, you should be generating ballpark $20 million in recurring annual revenue?

Correct. Maybe more than that.

Okay. Okay. Wonderful. Now to meet your forecast for the year, I'm assuming you're going to have to do at least 1 quarter over $10 million out of the next 2. How much more does the SG&A go up to generate to almost double your revenue? You got a metric we can use for that?

Yes, it doesn't. In fact, the SG&A is going to be flat. We're pretty much staffed at the level we need to be. As I mentioned in my part of the script, we are looking actually at SG&A expenses right now. There are some areas of -- and I'll just take the Rail business. There's some areas of the Rail business where there's probably some economies that are going to be -- that we're going to be implementing there. We're at a different stage with that business, and we're really harvesting at that point. The Edge Data Center business will add a little bit of resource there. But in general, we're pretty well set for that. And then as far as the asset management business is concerned with APR, we are completely staffed with that right now. And then effectively, we are basically generating revenue off of that and then we put our margin on top of that. So no, I'm not expecting any increase in the overall SG&A. As I mentioned and this was to the previous call as well, we had -- in this particular quarter, we had some onetime charges that related to the deal back from the end of last year. So we'll -- if you subtract out about $1 million of the SG&A, that's kind of where we are right now on a recurring basis, maybe a little bit, subtract a little bit more.

And our last question comes from the line of Ed Woo with Ascendiant Capital Markets LLC.

Yes. Congratulations on all your progress. I saw that you recently had a power deal in Mexico. Can you talk about possibly expanding either the Edge Data Centers or the power opportunity into either North America or international?

Yes. So very briefly, so APR won a deal to put 150 megawatts, which is 6 of our mobile gas turbines and balance plant into Northern Mexico for a relatively short-term contract, but an extremely healthy price. Obviously, through the asset management agreement, our team executed that and it went very well for us. We are currently putting additional power gas turbines into U.S. data centers on some other short-term contracts. So we are already in the United States, Ed, deploying some of those power assets here in the U.S. for larger big box data centers with behind-the-meter power solutions again, this is something relatively new in the market space. So everyone is learning how to do all the data center developers are learning about behind-the-meter power, but they're liking what they see so far. There are applications with our Edge Data Center business for smaller behind-the-meter blocks of power. I would -- we haven't really gone down that pathway yet. But I think probably in the next few months, we may take a look at that. But it is certainly a part of the business that could emerge here over the next few months.

And is this opportunity, meaning you may do more business in Mexico or Canada or possibly globally?

Yes. So APR is a business, and I ran that business before that did most of our work internationally. I think this time, we are primarily focused on the United States and U.S. data centers, but we will opportunistically do jobs in Mexico. Canada is not a bad jurisdiction either. We are currently looking at one opportunity that's in Puerto Rico. But many of the -- APR used to operate in some very, I'll say, spicy jurisdictions. It's our plan to focus on very nice, less risky jurisdictions. Right now, the demand doesn't need us. We don't -- based on the demand here in the United States, we're not going to have to go to those type of locations. But we're always willing to look at them opportunistically if it makes sense. So at this time, we'd like to conclude our question-and-answer. I'll turn it back to you, moderator.

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 terminologies 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 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 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 Duo's filings with the SEC. Thank you for joining us today for Duos Technologies Group's Second Quarter 2025 Earnings Call. You may now disconnect.