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, so 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 value in the future. The other transition, Duos Edge AI, takes our expertise in Edge Data Centers, which are referred to as EDCs or pods developed for the Railcar Inspection Portal and under the leadership of Doug Recker, a 30-year veteran of the data center space, gives us the opportunity to participate in the rapidly growing market for data centers where the demand is considerable. These two initiatives put us in a completely different position than where we were just 12 months ago. With the support of our Board of Directors and major shareholders, we have been able to successfully negotiate the expansion of the business to the point where we have significant short-term revenue growth combined with longer-term sustainable growth, putting us on the path to profitability. Whereas we have been disappointed with the results of our legacy technology business in recent years, I am pleased to report that in many respects, we are beginning to make progress in this area as well and which we expect will make a contribution to the financial results in the second half of this year. We are carefully evaluating our cost structure as it applies to the three subsidiaries with the expectation that we will rationalize accordingly and achieve economies of scale that were not previously possible with just a single line of business. As you are all no doubt aware, we have been active in the capital markets in the past 15 months, raising more than $50 million at an average price of $5.97 or more than double from just 12 months previously. For the first time in the company's history, we are sufficiently capitalized to take advantage of the new markets we have entered. In addition to the rise in the share price, our average trading volume has increased from less than 10,000 shares a day, what the market calls trade by appointment, to more than 300,000 shares per day. Before reviewing the formal results for the second quarter and first half and giving formal guidance, it is my expectation that revenues will continue to grow in each of the next two quarters. Chuck will discuss the individual business lines and give progress reports, but whereas our much improved results were largely driven by the execution of the asset management agreement in the first half, I expect to start seeing a broadening of the revenue sources to include the revenues from our EDC deployments as they come online and also better performance from our technology systems revenue line, all of which are anticipated to support a movement towards achieving breakeven to profitability by Q4. With that in mind, here are the results for the second quarter and first half. Total revenues for Q2 2025 increased 280% to $5.74 million compared to $1.51 million in the second quarter of 2024. And for the six months ended 2025, total revenues increased 314% to $10.69 million from $2.58 million in the same period last year. The substantial majority of our revenues for Q2 2025 was approximately $5.69 million in recurring services and consulting revenue, of which $4.76 million was primarily driven by Duos Energy beginning to execute against the asset management agreement with New APR. As a reminder, under the AMA, Duos Energy oversees the deployment and operations of a fleet of mobile gas turbines and related balance of plant inventory, providing management, sales, and operational support services to New APR. Cost of revenues for Q2 2025 increased 144% to $4.22 million compared to $1.73 million for Q2 2024. And for the six months ended 2025, cost of revenue increased 191% to $7.86 million from $2.7 million in the same period last year. The significant increase in cost of revenues was largely due to supporting the AMA with New APR. Overall, the cost of revenues on technology systems decreased compared to the equivalent period in 2024. This reduction is primarily driven by our ability in Q2 2025 to reallocate certain fixed operating and servicing costs for technology systems to support the AMA, an allocation we could not make in the comparative period because the agreement was not yet in effect. It also reflects the ramp down of manufacturing ahead of field installation of our two high-speed Railcar Inspection Portals, which has continued to temporarily slow project activity and further reduce the cost of revenues while we await customer readiness for site deployment. Gross margin for Q2 2025 increased 808% to $1.52 million compared to negative $215,000 for Q2 2024. And for the six months ended 2025, gross margin increased 2,462% to $2.83 million from negative $120,000 in the same period last year. Gross margin improved primarily due to Duos Energy beginning performance at the AMA with New APR. This includes over $900,000 in revenue recognized during the three months ended June 30, 2025, related to the company's 5% nonvoting equity interest in the ultimate parent of New APR, which carried no associated costs and therefore contributed at a 100% margin. These revenues and the associated margin contribution were not present in the prior year period. As I mentioned earlier, the increase in business from the AMA has improved gross margins with further improvements expected due to the greater profitability for Duos on certain aspects of the anticipated work it will perform on behalf of New APR. Operating expenses for Q2 2025 increased 65% to $4.96 million compared to $3 million for Q2 2024. And for the six months ended 2025, operating expenses increased 38% to $8.06 million from $5.86 million in the same period last year. The increase in expenses is largely attributed to noncash stock-based compensation charged for restricted stock granted to the executive team on January 1, 2025, under new employment agreements with a three-year cliff vesting schedule. In addition, the company recorded additional compensation expenses for commissions and bonuses, which are one-time in nature related to the closure of the APR transaction and the associated asset management agreement and 5% ownership grant. Overall, sales and marketing costs declined as resources were allocated to the cost of service and consulting revenues in support of the AMA with New APR. Additionally, research and development expenses decreased owing to completed development and testing of prospective technologies. The company continues to focus on stabilizing operating expenses, including evaluating reductions in some areas while continuing to meet the increased requirements of our new businesses. Net operating loss for Q2 2025 totaled $3.44 million compared to a net operating loss of $3.22 million for Q2 2024. And for the six months ended 2025, net operating loss totaled $5.23 million compared to a net operating loss of $5.98 million in the same period last year. The increase for the three months but decrease in loss from operations for six months was primarily the result of increased revenues compared to the equivalent periods driven by revenue generated by Duos Energy through the AMA with New APR. Net loss for Q2 2025 totaled $3.52 million compared to a net loss of $3.2 million for Q2 2024. The 10% increase in net loss was mostly attributed to the noncash stock-based compensation charge for restricted stock and one-time compensation expenses that were not in the comparative period, offset by an increase in revenues generated by Duos Energy through the AMA with New APR as described above. For the six months ended 2025, net loss totaled $5.6 million or negative $0.48 per share compared to a net loss of $5.96 million or negative $0.81 per share in the same period last year. The 6% decrease in net loss was mostly attributed to the increase in revenues generated by Duos Energy through the asset management agreement with New APR as previously described. In our last call, I highlighted the substantial improvement in the company's balance sheet as of 12/31/2024 and 3/31/2025. In the second quarter, we have largely maintained that strength, notably shareholders' equity, which now stands at over $4.7 million. We ended the quarter with $3.81 million in cash and expected short-term liquidity. As previously discussed, a significant asset for Duos is the equity investment in Sawgrass APR Holdings, now referred to as New APR Energy. Our 5% holding in this business is currently valued at over $7.2 million and is expected to generate profits in future years as a profits interest structure. As Chuck will discuss, the tremendous progress that New APR is making will be additive in the short term through the AMA and in the longer term through the expected increase in valuation of our equity holding. All of this is positive for Duos' future potential, and I look forward to updating you further in our earnings call later this year. On the liability side, the company has traditionally operated with little to no debt other than some minor financing contracts related to insurance or IT equipment. As a reminder, in 2024, we received $2.2 million in debt funding for our initial three EDCs, and we're able to secure that for around 10% cost of capital, which is an attractive rate for a company of our size. We also secured additional financing for a further three EDCs in the form of a master capital lease with a similar cost of capital and flexible payment terms as we deploy these assets in preparation for the associated cash flows. I'm pleased to announce that shortly after the quarter, we retired the remainder of the $2.2 million in debt funding. Next, I would like to update you on our backlog and pipeline, with expected revenues for the management and operations of New APR Energy, expected deployments of our Edge Data Centers, and current and anticipated contracts in our Rail business. Our current contracts in backlog represent more than $40 million in revenue with approximately $12.3 million or more of that projected to be recognized in 2025, plus a further $5 million to $6 million in expected near-term awards and renewals. During the last call, we confirmed annual revenue guidance, and I'm pleased to report that we are again maintaining that guidance where we expect to record between $28 million and $30 million in consolidated revenue from our three subsidiaries. I would further add that we are making good progress on moving the company toward profitability and expect that we will achieve that goal in Q4 of this year on an adjusted EBITDA basis. This concludes my formal remarks. And at this point, I will turn the call back to Chuck for his commentary.

Thanks, Adrian. The business has shown good progress since the start of the year. I’d like to provide some additional details. We have fully commercialized our first Edge Data Center in Amarillo, Texas, which allows us to validate our financial assumptions regarding installation costs and recurring revenues. Currently, we are installing the next five Edge Data Centers in Victoria, Corpus Christi, Waco, and Dumas, Texas. Moreover, four more will start production in mid-September and will be deployed to additional Texas locations. We have also ordered five more Edge Data Centers along with backup generators, expecting to begin installation in November. Our strategic partnership with FiberLight has significantly boosted our commercial pipeline in Texas. To further strengthen our Edge Data Center business, we will be enhancing our team and Board of Directors with more data center expertise in the coming months. With the commercial demand, capital, and execution knowledge in place, I’m confident we can accelerate the Edge Data Center business as planned. Additionally, our asset management agreement with APR Energy has been successful over these first six months, with our team aiding in the deployment of approximately 550 megawatts since the deal was finalized. Observing our team set up a 150-megawatt fast power plant in Mexico in just 35 days showcased their capabilities. Our team is also working on several large turbines and a behind-the-meter solution for a significant U.S.-based data center, where we’re gaining valuable technical insights in the emerging power sector. The demand for behind-the-meter power among large U.S. data center operators is at an all-time high and is likely to remain that way for a while. The AMA provides strong near-term recurring revenue, but the longer-term value lies in the 5% ownership stake in APR Energy, which investors should monitor. Our energy team is nearing several long-term deals for data centers that will likely utilize all of APR's current turbines and may prompt an expansion to acquire additional megawatts for increased capacity and enterprise value. While our Railcar Inspection Portal business has been slower in progress, we’re noticing a slight increase in interest from current customers, as well as renewed attention from the Federal Rail Administration and labor unions, both of whom would like to see increased use of this technology. We are reevaluating our strategy for this business line and will communicate our plans to investors at a later date. In conclusion, our business is well-positioned to capitalize on the high demand arising from the data center boom. Our Edge Data Center and power lines of business are ready to accelerate our growth strategy with the right leadership, an expanding pipeline, and sufficient capital. I want to thank our business partners, Board of Directors, and current shareholders for their ongoing support, and I extend a special welcome to our new shareholders from the recent fundraising. The outlook for Duos is very promising right now, and I’m excited to lead it. Thank you for listening, and we will now open the call for your questions.

Our first question comes from 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 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 compensation was that you're referring to that kind of throws off the apples-to-apples comparison from a year ago?

Yes. Essentially, the noncash compensation is approximately $1 million each quarter. If you take that $1 million and divide it by 25 million shares, you'll get the per share amount.

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. Traditionally, we have not used non-GAAP financials. We have discussed them occasionally outside of formal financials. One reason for this is that up until now, there wasn't much to report, especially recently. Also, providing non-GAAP financials requires more disclosure. So yes, we will consider doing that in the future.

Are the noncash items and the higher commission truly one-time occurrences, or are they expected to continue with the new business moving forward?

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, are really a timing issue related to the APR deal, which was quite a complex deal. That is truly a one-time. 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?

We spend approximately $1.2 million to $1.4 million to install a pod, which includes manufacturing, installation, and activation. We currently have our first pod operating in Amarillo, with five more being installed. Each pod is expected to generate around $350,000 annually, with the potential to reach $500,000. The successful outcomes we are witnessing in Amarillo confirm our business plan, where we aim to construct 150,000 or more pods. This information gives us strong confidence in our future financial forecasts.

Yes. The free cash flow on those units after year one is expected to be around $300,000 per year.

So let's estimate around $400 million annually from each of these. This could mean we're generating between $20 million to $30 million in revenue from 65 million units. I've also heard the number 150 million mentioned a few times. While this isn't official guidance, the goal is to have 65 of these deployed by the end of 2026. When you mention 150, is that meant to represent a long-term goal or a midpoint? I’d appreciate any clarification on that.

Yes. Our plan this year is to finish with 15 installations. By the end of next year, 2026, we aim to have at least 65 installations. In the following year, over the next 18 months, we want to increase that number to 150. Currently, we are installing five of these simultaneously, and it's progressing well, which gives me confidence. The commercial pipeline is strong enough to support these goals. Our priority is to prove that we can successfully execute five or six installations at once, and we are currently doing that. This capability will help facilitate our growth and enable us to achieve the associated financial benefits.

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 possible based on what we're seeing. Now that we have the capital on the balance sheet, we can move forward with that, and we are currently doing so.

My next question is regarding the recent sizable secondary offering. Do you believe it's an appropriate amount to generate $65 million in cash, which would then support the goal of reaching a greater number of these units? Specifically, do you think you currently have sufficient cash and capital on your balance sheet to execute this plan and achieve 150 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 take 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 million to $1.4 million 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 two weeks to install it. So it's a fairly simple install for us. And then there's probably another month or two 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.

I just want to add that when modeling this out, it can vary. Sometimes you'll start with an anchor tenant, typically three to five cabinets. However, we have other examples, including one we are currently working on, where the data center is fully occupied from day one.

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...

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. Can you clarify the revenue you're reporting? If you own these data centers and are incurring costs, where is the revenue originating from? Please help me with that.

So again, we obviously procure, own and 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 types of customers from that community are inside that data center, basically all paying rent, and that's where we make those recurring revenues.

Okay. I want to ensure I have the math correct. You mentioned reporting $5.8 million, and if we set aside the railroad business, I’m curious about how many facilities are currently operational—7, 8, or 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're referring to the Edge Data Center. The initial cost of establishing an Edge Data Center was approximately $1.4 million. After the first one, we've optimized processes and achieved some economies of scale, so that cost may decrease to around $1.2 million. In the first year, you can expect to generate between $300,000 and $400,000, depending on whether the centers are fully operational from the start or if they require ramping up. However, what's important to note is that these contracts typically last for very long terms, often five years with potential five-year extensions, and in some cases with carrier involvement, they can extend up to ten years. By this point, the initial investment has been made, and the general and administrative costs are quite low, making it a relatively inexpensive operation. Consequently, you can expect to generate about $300,000 in free cash flow each 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 one quarter over $10 million out of the next two. 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, SG&A is going to remain flat. We are adequately staffed at our current level. As I mentioned earlier, we are currently reviewing SG&A expenses. There are some areas in the Rail business where we will likely implement some economies. Our Rail business is at a different stage, and we are effectively optimizing it. The Edge Data Center business will require a bit more resources, but overall, we are well-prepared. Regarding the asset management business with APR, we are fully staffed there as well. We are generating revenue and applying our margin on top of that. Therefore, I do not anticipate any increase in overall SG&A. As I mentioned in the previous call, this quarter included some one-time charges from a deal at the end of last year. If you factor out about $1 million from SG&A, that reflects our current recurring basis, with possibly a slight reduction.

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 internationally?

Yes. APR secured a contract to deploy 150 megawatts, which includes six of our mobile gas turbines and balance plant, in Northern Mexico for a short-term agreement at a very favorable price. Our team successfully executed this through the asset management agreement. We are also installing additional gas turbines in U.S. data centers under other short-term contracts. In the U.S., we are already using some of those power assets for large data centers with behind-the-meter power solutions, which is a relatively new trend in the market. Data center developers are starting to understand behind-the-meter power, and early feedback has been positive. There are also opportunities within our Edge Data Center business for smaller behind-the-meter power blocks. We haven't explored that avenue yet, but it might be something we consider in the coming months, as it could become a significant part of our business.

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

Yes. APR is a business that I previously managed, focusing largely on international work. Currently, our main focus is on the United States and U.S. data centers, although we will consider projects in Mexico as opportunities arise. Canada is also a viable option. We are exploring one opportunity in Puerto Rico. In the past, APR operated in some high-risk locations, but we aim to concentrate on safer, more stable jurisdictions now. Given the current demand in the United States, we won’t need to pursue those risky locations, but we are open to considering them if it makes sense.

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