Duos Technologies Group Inc Stock

Good afternoon, and welcome to Duos Technologies Second Quarter 2026 Earnings Conference Call. Joining us for today's call are Duos' CEO, Doug Recker; and CFO, Adrian Goldfarb. Following their 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 Recker. Sir, please go ahead.

Welcome, everyone, and thank you for joining us today. Earlier today, we issued our earnings press release, and we will file our 10-Q for Q2 2026 by Wednesday, August 19, 2026. Copies will be available in the Investor Relations section of our website. I encourage all listeners to view the press release and our 10-Q filing to better understand some of the details we'll be discussing during this afternoon's call.

At a high level, the second quarter represented another important step in our transformation into a data center and AI infrastructure company. Throughout the quarter, we continued executing on our strategy of expanding our edge data center platform, growing Duos Technology Solutions and advancing several key strategic initiatives designed to support long-term revenue growth and profitability. While Adrian will provide details on the quarter's financial performance, I'd like to spend a few minutes discussing the key operational developments and strategic progress we made during the quarter.

Beginning with the Rail business, I'm pleased to report that we have successfully completed the sale of Duos Technologies, Inc. on August 5. Post transaction, Duos Technologies, Inc. has become an independent privately held company operating under the Duos TI brand and led by Javier Acosta as President. This transaction represents the completion of the strategic repositioning initiative we announced earlier this year.

By completing this divestiture, we are now able to dedicate our capital, management, resources and operating focus entirely towards scaling Duos Edge and Duos Technology Solutions. We believe this streamlined structure will allow us to accelerate execution, improve organizational focus and better align the company with the opportunities we see across the AI infrastructure market.

While we will provide certain transition services for a period following the closing, investors should view this transaction as completion of our transition from a rail technology company into a focused AI infrastructure and edge data center platform company. Going forward, our attention is centered on executing our deployment strategy, expanding customer relationships and converting our growing backlog and pipeline into long-term recurring revenue streams.

Now separately, New APR Energy sold substantially all of its assets during the quarter. As a reminder, we held a 5% stake in the APR parent company and the sale valued our interest at approximately $60 million. We received $50.4 million in cash, with the remaining $10 million subject to a 12-month holdback that is recorded as a receivable on our balance sheet.

Combined with the Rail divestiture, these transactions essentially complete our full transition to a data center operation, where we also materially strengthened our cash position to execute against the opportunity ahead. Looking beyond 2026, we believe the strength of this balance sheet and the focus that comes from operating as a pure-play AI infrastructure company positions us to keep building momentum into 2027 and beyond.

Alongside these strategic and financial steps, we've also continued to strengthen our leadership team to support the next phase of our growth. I am pleased to share that we recently welcomed Dipan Patel as Chief Operating Officer. Dipan brings years of experience driving growth in the digital infrastructure business, including with SBA and more recently, Telstra InfraCo, and he will help drive execution across our edge data centers and technology solutions platforms.

We are also in the final stages of our search for a new CFO with significant public market experience, and we look forward to sharing more details as that process concludes. We believe this addition further strengthens our ability to execute against the growth opportunities ahead. With those updates addressed, I'd now like to turn to our core business growth opportunities, Duos Technology Solutions and Duos Edge AI. Okay. Now get your popcorn ready because it's about to get really exciting. Let's start with the Technology Solutions.

This business continues gaining traction and remains an important component of our growth strategy. During the quarter, revenues totaled approximately $3.23 million, driven primarily by continued growth in the data center deployments and the trust that these operators have in our ability to secure and deliver critical equipment they need to keep their projects on time.

We also increased our backlog to $25 million, demonstrating the continued demand for our services here from enterprise, contractors, data center operators and AI infrastructure players. The opportunity remains significant because this business allows us to generate revenue with relatively low capital requirements while also supporting our own infrastructure deployments. We remain encouraged by the opportunities we're seeing in the market today.

Our growth continues to be driven by the strategic relationships we've built in a relatively short period of time, we're focused on delivering solutions in a market facing unprecedented timing, demands and supply constraints. We've secured strategic MSA contracts, proven our ability to deliver and continue to gain traction with our manufacturing and vendor partners.

Today, data center operators, contractors and hyperscalers need more than traditional order takers. They need partners who can pivot quickly and navigate the largest boom the industry has ever seen. That's exactly what our Technology Solutions team brings to market. As for Duos Edge AI, the demand environment for AI infrastructure remains exceptionally strong.

One of the most significant developments since our last earnings call was signing of a 5-year colocation agreement with Axe Compute, Inc., a neocloud AI infrastructure platform, to provide 10 megawatts of critical IT load capacity at our Columbus, Georgia campus. This agreement is valued at more than $111 million in contracted revenue over the initial term and is expected to become operational during the fourth quarter of 2026.

We believe this agreement is an important validation of our strategy to develop owned high-density AI infrastructure in attractive markets where power availability, speed of deployment and operational flexibility are critical to customers. It also demonstrates the increasing demand we are seeing for large-scale AI and cloud customers seeking scalable infrastructure solutions outside traditional Tier 1 markets. And as announced earlier today, that relationship has now taken a major step forward.

Together with Axe Compute, we have announced the new service orders adding up to 55 megawatts of AI data center capacity across multiple U.S. locations under a 5-year agreement, an expansion that builds directly on the 10-megawatt deployment we are planning to deliver at our Georgia facility. The agreements represent an expected $500 million plus in aggregate base payments over their initial 5-year term.

As part of the expansions, the parties have entered into a related agreement contemplating aggregate cash equity investments by Axe Compute of up to $140 million in the project, subject to required approvals, financing, final technical design and other conditions. Axe Compute and Duos will jointly own the new data centers with Duos holding 51% and Axe Compute holding 49%. For Duos, this structure provides a non-dilutive financing model that allows us to launch more data centers faster.

Initial project readiness is targeted to begin in late 2026 and continue in early 2027, subject to construction, commissioning and performance testing. That demand is evident across our pipeline and customer engagement activity. During the quarter, we hosted an open house in several markets, including Lubbock, Dumas, Hereford and Abilene, providing prospective customers, community leaders and strategic partners the opportunity to see our deployments firsthand.

For example, we recently announced an opportunity with Zero Latency company, 0LAT, covering up to 15 sites and 225 cabinets, which speaks to the level of interest we're seeing across that portfolio. Beyond these market development efforts, we also continue making progress with Nistar. This quarter, we continue to expect deployment activities to progress in line with our planned mutual deployment schedule.

As a reminder, this deal represents approximately 2 megawatt of contracted capacity and serves as another important validation of our edge data center platform and our ability to support customers with high-density AI compute requirements. Importantly, the Nistar agreement is expected to contribute recurring colocation revenue as capacity comes online and customer utilization ramps.

While revenue recognition will be dependent on final deployment and timing of operational commencement, we believe the project provides another meaningful building block in our path towards establishing a larger portfolio of recurring infrastructure revenue. Put together with our Columbus announcement and the Axe Compute expansion, these agreements validate our edge data center strategy and support our confidence in future growth.

Now turning to HydraHost. The HydraHost deployment remains one of the most significant opportunities in the company's history and continues to serve as a cornerstone of our growth strategy. During the quarter, we continue making progress on deployment activities and customer onboarding. We visited our Columbus facility last week hosted by our customer. They were very impressed with our quality and speed of deployment and the progress we've been able to make in just a few weeks.

We remain focused on bringing additional capacity online and supporting customer utilization as deployment progresses. Revenue recognition is expected to increase as systems become operational and GPU capacity is placed into service. From a financial standpoint, we continue to benefit from the strong contractual foundation of the agreement, including customer deposits already received and additional funding milestones expected to be completed pursuant to the contract terms.

Just as importantly, we believe this relationship provides meaningful expansion opportunities beyond the initial deployment. The growing demand for AI training, inference and high-performance computing workloads continues to create opportunities for additional capacity, and we remain engaged in discussions regarding future expansion scenarios. Overall, we are encouraged by the progress to date and continue to believe this relationship positions Duos to participate meaningfully in the rapidly expanding AI infrastructure market.

Regarding capacity expansion, we continue to execute on our nationwide deployment strategy. Our goal for 2026 remains approximately 25 megawatts, and we are 100% on plan to achieve that milestone. We also continue to evaluate opportunities to accelerate deployments where customer demand and power availability support attractive economics. As we've discussed previously, our strategy is not simply to add capacity, but to deploy capacity in locations where power, connectivity and customer demand aligned to create long-term value.

The demand environment remains highly favorable, and we believe our modular approach provides us with the flexibility to scale efficiently while maintaining a disciplined approach to capital deployment. As a result, we remain confident in our ability to continue expanding our edge data center footprint in support of both existing customer commitments and future opportunities. We believe the trends we are seeing continue to support our business model and long-term growth opportunities.

As we look beyond this year, we expect the combination of contracted backlog and expanding pipeline and additional capacity coming online to continue driving growth into 2027, and we will remain focused on translating that visibility into durable long-term shareholder value. Now I'd like to turn it over to our CFO, Adrian Goldfarb, who will go over our financials for the second quarter of 2026. Adrian?

Thank you, Doug. This was the most consequential quarter in the company's history, and we completed our transformation. During the quarter, we signed and on August 5 closed the divestiture of our legacy rail business, which is now reported as discontinued operations for all periods presented. We also bought the APR chapter to a close.

The asset management agreement was amended beginning in the first quarter to reduce the scope of services and the related revenues are winding down with minimal amounts expected through the third quarter. The staff supporting the agreement and their full cost base have transferred out. In May, new APR sold substantially all of its assets, and that sale crystallized the value of our 5% interest at approximately $60 million.

We received $50.4 million in cash, with the remaining $10 million subject to a 12-month holdback and carried as a receivable on our balance sheet. Against a $7.2 million carrying value, the transaction generated a $53.2 million gain. Our edge data center and AI infrastructure model is now our sole operating focus. And when I speak to results today, I'm speaking to continuing operations unless I say otherwise. I will now walk through our second quarter 2026 financial performance and highlight the key drivers of our business.

Total revenue from continuing operations for Q2 2026 increased 30% to $6.18 million compared to $4.77 million in the second quarter of 2025 as now presented to exclude the divested rail business. Composition tells the story of the pivot. Technology Solutions contributed $3.23 million, our largest revenue line against a 0, year ago. Related party services and consulting revenue was $2.91 million, which included $2.71 million of onetime accelerated recognition of the remaining APR deferred revenue.

Go-forward AMA revenue will be minimal as it winds down through the third quarter and hosting revenue is just beginning to build. For the 6 months ended June 30, 2026, total revenues were $8.32 million compared to $8.68 million in the same period last year. The modest headline decline is the pivot working as designed. AMA revenue declined $4.2 million on the wind down, while Technology Solutions added $3.8 million from a standing start.

Cost of revenues for Q2 2026 decreased 9% to $2.73 million compared to $2.99 million for Q2 2025. For the 6 months, cost of revenues decreased 32% to $3.82 million from $5.65 million in the same period last year. The decrease reflects the wind down of the low-margin AMA pass-through cost structure. Gross margin for Q2 2026 increased 94% to $3.45 million or 55.8% of revenue compared to $1.78 million or 37.3% for Q2 2025.

For the 6 months, gross margin increased 48% to $4.5 million or 54.1% of revenue from $3.03 million or 34.9% in the same period last year. This improvement in margin quality is structural, not seasonal. It reflects the shift of our revenue base towards technology solutions and infrastructure services. Operating expenses for Q2 2026 were $3.4 million, up 2% compared to $3.32 million for Q2 2025. For the 6 months, operating expenses were $7.63 million compared to $5.11 million in the same period last year.

The first half increase carries deliberate investment, growth hiring, public company costs and stock-based compensation put in place ahead of the second half revenue ramp. Income from operations for Q2 2026 was approximately $50,000 compared to a loss from operations of $1.54 million for Q2 2025, a significant improvement in moving towards profitability as a data center infrastructure company.

For the 6 months, the loss from operations was $3.13 million compared to $2.07 million in the same period last year, reflecting the first quarter investment period ahead of revenue, the increase being largely the result of noncash compensation. Including the $53.2 million gain on the sale of investments, income from continuing operations before income taxes was $53.6 million for the quarter. After an income tax provision of $5 million, net income from continuing operations was $48.7 million compared to a loss of $1.6 million in Q2 2025.

The loss from discontinued operations narrowed to $0.8 million from $1.9 million. Consolidated net income for Q2 2026 was $47.8 million compared to a net loss of $3.5 million for Q2 2025. Basic earnings per share of $1.61 from continuing operations and diluted earnings per share of $1.37 and a loss of $0.14 per share in the same period last year, also from continuing operations.

For the 6 months, consolidated net income from continuing operations was $45.6 million or $1.70 per basic share and $1.41 per diluted share compared to a net loss of $5.6 million or a loss of $0.21 per share in the same period last year. As we discussed on previous earnings calls, returning to positive adjusted EBITDA has been an important milestone for the company. I am pleased to report that we got there ahead of plan. Adjusted EBITDA for Q2 2026 was positive at approximately $0.5 million, excluding the onetime gain on sale of investments and stock-based compensation.

We expect adjusted EBITDA to remain positive in both remaining quarters of 2026 with meaningful expansion in the fourth quarter as the GPU deployment ramps. Shifting to the balance sheet. The company ended Q2 2026 with $112.3 million in cash compared to $15.5 million at December 31, 2025, and stockholders' equity of $207.4 million. The increase reflects the $50.4 million received from the sale of substantially all the assets of New APR Energy, our March public offering and our $55 million registered direct offering completed in June with a single large institutional investor.

We are effectively debt-free with no borrowings beyond a small insurance financing balance. Columbus seller note and our planned GPU senior debt facility arrive in the second half by design, matched against the assets that they fund. The number I'm most proud of this quarter is operating cash flow. Cash provided by operating activities from continuing operations was positive $11.9 million for the first half, a swing of nearly $20 million from the prior year.

Our customers are funding our growth. $18.8 million of long-term deferred revenue, which includes the customer prepayment under our GPU program sits on our balance sheet. Offsetting the $50.4 million gain on investment were investing outflows of $77.1 million with staged growth capital, $68.8 million of deposits against our GPU equipment program, $5.8 million of deposits on real estate and edge data construction, assets that begin producing revenue in the second half.

Subsequent to quarter end, we completed the $30 million acquisition of our Columbus, Georgia data center structured capital efficiently with $15 million in cash and a $15 million zero-coupon seller note repaid only as incremental power is delivered to the site. Columbus is being equipped to support 2,304 NVIDIA B300 GPUs. Put together, our financial position gives us the ability to meaningfully deploy capital to support our expected growth in the second half and beyond.

Turning to our outlook. I want to be explicit about our guidance philosophy. We guide to what is contracted, deposited and scheduled, not to what is possible. Our outlook assumes no acceleration in GPU energization and no contribution from transactions that have not closed. At the end of the second quarter, the company's bookings represented approximately $43.5 million in revenue, all of which is expected to be recognized during the year, including contracted backlog and near-term anticipated awards.

In addition, approximately $1.1 million of contracted Technology Solutions deferred revenue recorded in 2025 will be recognized as revenue in 2026, further supporting the company's performance. Based on these committed contracts and near-term pending orders that are already performing or are scheduled to be executed through the remainder of 2026, we are reconfirming our expectation for total revenue in 2026 to exceed $50 million. Let me briefly walk through how we bridge from $6.18 million of Q2 revenue to our full year target.

Our GPU-as-a-Service business is the primary driver, which we expect to contribute approximately $26 million as the deployment comes online and utilization ramps in the second half. In addition, we expect approximately $25 million from our Technology Solutions backlog, a solid base of committed revenue that includes $2.9 million currently recorded as deferred revenue to be recognized in the second half. We remain confident in this outlook given the accelerating demand for our edge data center model, continued customer expansions, new hosting deployments and continued capacity build-out.

On profitability, we expect positive adjusted EBITDA in both the third and fourth quarters with fourth quarter adjusted EBITDA in the range of $8 million to $10 million. The way to understand 2027 is through our fourth quarter exit rate. In the fourth quarter of 2026, we expect recurring infrastructure revenue, GPU-as-a-Service, colocation and hosting of approximately $17 million to $18 million, which represents an expected annualized recurring revenue exit run rate in excess of $70 million, contracted under multiyear agreements and carrying gross margins well above 70%.

For full year 2027, our early framework calls for total revenues of at least $160 million, a full year of the GPU program, a full year of our contracted colocation deployments now in development and continued growth in Technology Solutions. That framework includes only announced and contracted programs. Additional site acquisitions and partnership structures in our pipeline will be incremental.

We expect adjusted EBITDA margins to expand very significantly in 2027 as the recurring revenue base scales against a substantially fixed cost structure, and we will provide formal 2027 guidance with our third quarter results. Six months ago, this company was a rail inspection business with an asset management side agreement.

Today, it is a funded effectively debt-free data center infrastructure company with $112 million of cash, positive operating cash flow, 2,304 NVIDIA B300 GPUs being installed in a facility we own and a contracted path to an annualized recurring revenue exit rate above $70 million. The pivot is complete. Now we execute. Doug, I'll turn it back to you for your final comments.

Thank you, Adrian. I told you it was going to be exciting stuff. Okay. As we look ahead, we believe Duos is entering the next phase of its evolution with a stronger balance sheet, a simplified operating structure and growing momentum across the Edge and Technology Solutions businesses. We believe these dynamics position us to extend our growth trajectory into 2027 and beyond.

With 25 megawatts of contracted capacity planned for deployment in 2026 and now more than 75 megawatts under contract following the Axe Compute expansion, a growing backlog and increasing demand for AI infrastructure, we remain focused on execution and on converting the opportunities in front of us into long-term recurring revenue and shareholder value.

I'd like to thank our employees, customers, partners and shareholders for their continued support. With that, let's open the line for questions. Operator?

[Operator Instructions] And our first question comes from the line of Brett Knoblauch with Cantor Fitzgerald.

On the quarter and what seems to be a flurry of good announcements. If we could start with kind of like the news of the day with the Axe Compute announcement. Was that 55 megawatts IT load or gross?

And is that incremental to the previous 10 you signed with them? Or -- so it would be maybe 65 in total with Axe Compute or maybe I'm misunderstanding that? Or is it 55 in total?

Hey, Brett. Doug Recker. Thanks for the questions. Yes, that's gross. The 55 megawatt is gross. So that's in addition to the 10 meg that we already signed. So the 10 meg that's being deployed in Georgia, then you have another 50 megawatts plus contracted recently, actually this week.

On where that capacity is going, have you guys already secured those sites? I say secured kind of maybe identified and paid for those sites? Or is that something that's kind of like TBD?

Yes. No, our strategy is this. So what we do is we go out to the market and we find multiple sites. So right now, basically in our sites, there's 6 to 7 that we're looking at, a few are in LOI status. And those sites will pick which ones come up the fastest. So the majority of our sites, just so you know and it's very -- it's good for everybody to understand, these are not behind the meter.

These are where the electricity utility already has the power transmission down. So that means it's already at the site. I don't have to go through requests with the energy provider to make sure I can get it. These are powered sites that are ready to deploy on immediately.

Okay. Awesome.

And to answer a little deeper for you, the sites are in Texas. There's a few sites in South Carolina, Iowa, in Alabama. So these sites that we're actually under LOI and actually in the process of purchasing have power to them already.

And then maybe just think through the JV. Am I right in thinking that they're going to kind of maybe spend $140 million upfront for their 49% stake? That $140 million should effectively pay for most of the data center CapEx. So you're kind of getting a 51% stake in a fully built-out kind of data center portfolio through this deal?

That's exactly correct. So remember, the other key component, so you can do the math, everybody is going to ask this, so I want to answer the question there for you. Remember, we're actually looking at our numbers now as we're building, we're coming in under $6 million a megawatt. So you can see that we need to contribute basically $30 million per site.

When you say per site per kind of EDC deployment, right?

Right. For the two locations that we are deploying for Axes, correct.

Okay. And then on this Zero Latency kind of nonbinding term sheet, is this -- I'm thinking about this right, these are of maybe your lower power density cabinets that you're effectively kind of signing a lease for these sites to focus maybe more on the high-power EDCs?

Correct. Correct. So basically, what this is, is, let's think in your mind, a bare metal provider. They're looking at all 15 of our sites. It's a 10-year deal. It's a 10-year deal. And so if you take 15x 15 cabinets basically, they're consuming the whole pod.

And the next question comes from the line of Ed Woo with Ascendiant Capital.

Yes. Congratulations on all the progress for everything you guys done. My question is, is there any change in competitive environment?

So far, our niche, obviously, as you can see, is anywhere from 1 to 20 meg. That's our niche. You're starting to see the demand increase rapidly. If we went through our funnel, we'd probably be here for another 30 minutes. So what we're seeing in that niche is also enterprise customers coming out saying, look, we need two meg.

They're getting away from their original enterprise data centers. So what you're going to start seeing is people coming to the market doing the same thing. I mean we're not creating -- we're not rocket science over here. We hit a market and it's about to explode, and you can see that just basically from our funnel. So I anticipate other people coming out, but the key is, do they know how to deploy modular, right? We have the upper hand. So we've deployed modular for the last 9 years.

And number two, what's critical to our business that we need to focus on is we have a patent. I'm sure everybody is aware of that, the patent called the clean room. When you deploy GPU, they're extremely sensitive to dust, pollen, everything. So without that clean room, there's -- people aren't putting $40 million worth of GPU or $100 million worth of GPU in a cluster that's in a modular environment. So that's one of the main key differentiators that we have in the market right now.

That sounds great. And congratulations on everything you guys done, and I wish you guys good luck.

Thank you, Ed.

And the next question comes from the line of Scott Buck with Titan Partners. And the next question will come from the line of Bill Papanastasiou with Chardan Capital Markets.

Congrats on all the progress. For my first question, there was commentary on the expanding demand funnel and contracted backlog. Can you help us size that up? How long approximately do you think it would take to clear that backlog.

Yes. So the beginning orders that we signed are cluster #1 and then the expansion in Georgia for the additional 10 meg. We see that coming up by the end of the year. We're on track to do that. And then the second piece that we signed, we're expecting to see that in the middle of the first quarter.

If all cylinders hit, we'll definitely see that at the beginning of the first quarter, but we're giving ourselves some [leeway] there. So we're going to say the end of first quarter, which is very strong. If you figure that's under 6 months' worth of delivery, it's strong.

Appreciate the color there. And then apologies if I missed this, but could you just walk us through which markets remain the most attractive for your business and in terms of scaling the portfolio.

Has the recent political headwinds impacted the strategy at all? I'm assuming not materially given the size of the sites that you're standing up.

Yes, you're absolutely right. So that's the other secret sauce there. We're under 20 meg. So when you go into a market that's under 20 meg, you're really not hitting the radar, right? So we're focusing on what we call stranded power. So there's a lot in South Carolina. There's a lot in Iowa. There's a lot in markets that the pricing is still around $0.04 to $0.07 a kilowatt hour.

So we're focused on those markets where we find the stranded power or also the second strategy is there is bit miners out there that weren't successful that actually had powered sites, and we're looking to take a lot of those over. And those are in the range of 5 to 20 megawatts. Remember, we didn't disclose our funnel, but in our funnel, we have a ton of use cases for two to seven meg. So we're going to start hitting those as well.

The next question will come from the line of Scott Buck with Titan Partners.

Sorry about that guys. First, I'll echo the congratulations that you received already. Doug, I'm curious, could you go in a little deeper on the pipeline in the Tier 3, Tier 4 markets beyond the 25 megawatts and the 55 for Axe.

What is kind of the binding constraint going forward? Is that power? Is that capital? Is that customers?

Great question. Great question. So what we see is the Tier 3 and Tier 4 markets are prime for us. We're still within 130 miles. We're still under five milliseconds everywhere we go. There's still fiber available. Fibers are short build into these locations. But what we really see is that's where the stranded power is, right? That's where there's power that we can consume right away.

And the market as far as backlog, I would -- I could tell you strongly just in our local funnel with in-house here, not with people calling us, which is another log. So we're well over 100 megawatts in 5 to 10 meg tranches in our funnel just for this year. So obviously, we can't hit it this year. But these customers are calling us asking, hey, can you get it in, in the next 6 or even 9 months. And those are the ones we're focusing on now.

Because the key to this business is to deploy quickly, but you want to do it right. You mess up one time in this business and you're done. And I've done this 30 years. And let me tell you, you have to do it right because these customers rely on your power 24 hours a day, and it's their livelihood and it's our livelihood. So we're doing it right. We're not throwing a bunch of stuff against the wall here.

We're doing it right, and we're hitting the right customers, which we -- when we say right customers, they're Tier 1 credit. They're very reputable companies. They've been around a long time. So we are at a position now where we can be choosy on who we take, which is great because in this model here, you've got to be careful, right? We've got to be careful who we sign, and we're very diverse on our customer base. So we don't have one customer taking up all our bandwidth here.

Great. And Doug, on speed of deployment, in Columbus, what was the actual time line from site selection to actually billing customers?

Yes. This will blow you away. We actually had our customer do a visit last week on Thursday, and they were blown away. To be honest with you, I was blown away, too. So we bought this building in the beginning of July. And think about this, the beginning of July, we are now, what on the 17th, 18th of the month of August.

We've actually installed over 7 megawatts of new infrastructure. When I say new infrastructure, that means you take a building just the shell of the building. You bypass everything that's in the building except for the fiber build-out, and we brought everything in brand new, everything from generators to cooling plant all the way to PDUs to cabinets to everything, lighting, raised floor, we put 17,000 square foot raised floor in. We did that all under 60 days.

Wow, okay.

I challenge anybody to do that.

And if I could squeeze just one last one in for Adrian. You mentioned in your prepared remarks some of the kind of upsized costs in the first half of the year. I'm curious, we should view that kind of uptick as onetime in nature. And as we move into '27, see a more muted, I guess, OpEx growth. Is that fair?

Absolutely. You got it in one. So we've just come off a very, very complex period, the first kind of two quarters of the year, where, obviously, the APR sale, the divestment of the rail business, there was a lot of very complex accounting around that. And then with the shift in adjusting the staff and everything else. So all of those costs that are in there are very much onetime in nature.

We were about -- we closed last year when we still had APR here, we had about 100 people. And now with the divestment of the rail business, we're down to about 25 full-time people. Sorry, I just dropped off there. What I was saying was that the SG&A is growing now very, very slowly.

And the costs really will be more associated with specific opportunities that are going there. But we've done -- Doug and I have been working on making sure we streamline our operations. So yes, very much onetime.

And the next question comes from the line of Justin Taffer with Shay Capital.

Doug, just a couple of questions for you. Maybe on the Axe deal, anything you can talk about sort of, I assume, who the end customer is just in terms of -- and I know you said they're going to deposit $140 million.

So I assume it's a decent to your credit customer if they're putting in the cash. But anything you can help on the end customer here?

Absolutely. So they are a Tier 1 hyperscaler. They did visit the site in person last week. We know -- we can't disclose who they are, but I can tell you they are extremely credible and creditworthy. Actually, we funded our GPUs based on that customer. So they're very solid. But once again, this is part of the Axe deal as well.

So we wanted to make sure, obviously, we're getting into this SPV that, number one, the money was there. And number two, is this customer credit worthy and are they going to stay 5 years, right? That's a 5-year term. So we did our due diligence, and we're very strong about it.

But also, Justin, I want to let you know that I have Dipan here in the room, and I wanted him to give you kind of an outlook real quick on what this SPV is, just so it's clear because I know I'll get a ton of calls. And I still welcome the calls, but this might help everybody understand what that SPV is. So Dipan, go ahead and give Justin a quick background on what that SPV looks like.

Thank you, Doug. Hi, Justin. Hello everyone. The SPV is a vehicle for us to fund the development of these data centers. While we will be the managing partner of the SPV with a majority share, we will get the cash injection from Axe for an equity position. And then we will develop out these data centers with a lease from Axe as well as their offtaker.

Got it. And then maybe just a follow-up. Actually the deals you've done have been, I guess, 5 years when I look at some of the peers out there that I guess are signing bigger deals, and I realize you're in a different market and looking for, like you said, sub-20 megawatt deals.

Just what's the longevity of your pods? And then how do you think about, I guess, duration of deals? Because the payback period seems pretty attractive so far, at least on the 5-year deals you've signed here.

Yes, Justin, our life span on our pods and our facilities are well over 20 years. The only thing that we will swap out over 10 to 12 years would be the batteries on the UPS system. But the infrastructure itself is well over 20 years.

Okay. Great. And maybe just one last for me. So if my math is right, basically, based on this SPV, based on the cash on your balance sheet, and I think you said like you might have to put $30 million or so per site on this new deal, you should pretty much be covered for these deals.

But just maybe talk about going forward and funding, how you think of, I guess, to sign the additional 100 megawatts you talked about in the pipeline, just how you think about financing going forward?

Yes. So basically, what this does too, and why I chose to do this deal was it obviously gives us the cash to buy infrastructure soon on these projects to make sure we hit it by the first quarter. So we need to order that stuff now. And what that also does is it will bring us revenue that we can actually borrow against.

So basically, the debt financing will follow this. We're not in this game to dilute our investors. So this was a good decision for us to do this kind of financing or this partnership. So now when I go out for capital, I have that strong -- this SPV, we can borrow against.

So I have this basically infrastructure, that's $140 million that I can borrow against, number one. Number two, it will allow me to buy time now to get my revenue kicking, like we said, from the GPU and everything. So that $4.4 million will start here very soon, and then that will give us more credibility, more money on our balance sheet.

Per month.

Per month, per month. So did I miss anything...

No, no.

[indiscernible] Sorry, Justin, did I get it all?

And the next question comes from the line of Nico Sacchetti with RBC.

Am I live? Did I make it on?

Yes, sir.

Please don't take me off this time. I hope I have good service. It is so commendable. I think that you're not getting enough congratulatory remarks because you guys pulled off something that doesn't happen very often, which is you said you were going to do something and then you did it. And I mean, it's pretty incredible that you've got all these great things that are happening.

And I think it's just really exciting that I feel like the majority of really the trickiest part is behind you. And I still am hearing these things where there seems to be some confusion around it. I would like to ask you a question that just reframe this that makes it seem a lot easier for my brain to understand this is instead of this being a data center company, we are basically just a company that builds apartments and we rent them out.

And so there's two components to this business. Like you say our model, you say this is our model, and that's how I take it is we were doing this for $1 million a unit. Suddenly, we needed $30 million for a unit. We didn't have that capital, and we didn't have cash coming in, so we couldn't access debt, which is totally the right move because that would have opened the door to hurt the shareholders. And I appreciate you doing something good for us, by the way.

But that little rock in a hard place scenario, is it behind us? I mean, obviously, if you have a massive opportunity and dilution looks like the right thing to do, I wouldn't ask you to say you're permanently done, but I feel like you've been getting hit inappropriately hard on the short side. And I don't know if you realize this, but there's over 5 million shares short your company.

And I'm pretty sure it's because you haven't made money and you've been raising money several times. And so it is a really important thing to clarify. And then I'm sure that this will happen tomorrow because you guys just reported $1.61 in the quarter, from a onetime one-off sale. And so much of this trading takes place on algorithmic stuff that we might see some goofy stuff tomorrow.

And the goofy thing is you deserve it anyways, but it might come from the sale that took place. So I would just expect the unexpected. But I mean, is that all this is where we've needed to get a couple of these apartments built so that we could get a tenant that we already had locked in, in a contract to start renting the space out from us. And when we have the combination of the tangible asset, we can like HELOC that just like you do at your house.

And then we have this contractually obligated high-margin revenue that's going to clear the cost of capital to use debt on new projects. So like that's where we've been -- that's been my understanding of the model. I think it's a lot easier to think about this because unlike an apartment, if push came to shove and our renters dried up, I mean, I don't think the location matters that much, but we could pick it up with a crane and move it to where -- to a more favorable location, right?

Yes. You're answering my questions. But yes, so when we go into a market and say I deploy 10 megawatt, let's say that customer goes away in 3 years, right? My infrastructure is almost paid for by them, number one. Number two, the power is in such demand. Right now, if I had 20 megawatt right now, if I had 10 megawatt, if I had 4 megawatt right now available today, I have probably 16 customers lined up to take it.

That's how strong this market is right now. I'm giving my secret sauce out here, but I'm just being honest with you. So the other crazy thing is if you think about it, Nico, if you think about the customers that are in enterprise data centers right now, and this was the talk I gave last week. If you think about the enterprise customers that are actually in a data center that are used to taking 20 kW cabinet or 15 kW cabinet, now they're switching their components out to AI.

Now all of a sudden, they need 60 kW. Those data centers, those enterprise legacy data centers can't provide the cooling, not just because they can't get the power, but they don't have room for the generators. They're landlocked. They can't get that done. So Fortune 100 are calling us, asking us, can we deploy a meg with you? Can we deploy two meg with you? That's where your market is going to turn.

So we are focused on these Neo clouds right now. But I tell you what, our market just opened wide open to that sector. That sector, I love because the data centers that I've owned and sold before, even the one right down the street, Colo5, when I sold that to Cologix, those customers are expanding. They have no place to go.

So where are they going to go? They're going to go to where the network is and the power is in a reliable data center. And it doesn't really matter if they're 130 or 140 miles outside of town because the networks are built stronger now.

So that's -- so the old -- the standard unit, the wholesale model, the whole idea was it was better from a latency standpoint to have that smaller powered unit right by the school or the hospital and that changed where like just to clarify, like the Iowa project is just a contracted revenue for that output power.

And that's just been moved over to Georgia because that had guts there where you could get it cash flowing quicker, it wasn't -- like that's all that was. Just to clarify, it's not like we didn't do Iowa. We still own a piece of dirt there. We could just get the 10 megawatts ready for them there.

And then you said that there's another 10 that you contracted in that same building. Is that what you're saying?

We're adding 10 more megawatts to the existing building. That's correct.

And that's the 5-year 111?

Yes.

What's the rationale behind 10 megawatts going for 176 for 3 years, and then 10 going for 111 for 5 years? Is it like a different?

The first one is mixed with GPU. Remember, the first deployment that we have there is the GPU involved. The second deployment, we don't own the GPU. It's straight Colo, and that's what we're in business to do. That's our model.

Thank you. This concludes today's conference -- question-and-answer session. And now I'd like to turn the call back to Mr. Recker for closing remarks.

Thank you, everyone, for joining. Remember, you can always get a hold of me, send me an e-mail. I'd love to talk about if you have questions. But thank you all for today's call. I appreciate everyone, and we'll talk to you soon. Thank you.

Before we conclude today's call, I'd like to provide Duos' safe harbor statement that includes important cautions regarding forward-looking statements made during this call. The 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's 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 2026 Earnings Call. You may now disconnect.

Good morning. Welcome to Duos Technologies First Quarter 2026 Earnings Conference Call. Joining us for today's call are Duos' CEO, Doug Recker; and CFO, Leah Brown. Following their remarks, we'll open the call for your questions. Then before we conclude today's call, I'll provide the necessary cautions regarding the forward-looking statements made by management during this call.

Now I'll turn the call over to Mr. Doug Recker. Sir, please proceed.

Welcome, everyone, and thank you for joining us today. Earlier today, we issued our earnings press release and at the end of last week, we filed our 10-Q for Q1 2026. Copies are available in the Investor Relations section of our website. I encourage all listeners to view press releases and our 10-Q filing to better understand some of the details we'll be discussing during this morning's call.

At a high level, our first quarter results reflect the continued execution of our strategic transformation towards a data center-focused tech platform with our Duos Edge AI Technology Solutions division emerging as our primary growth drivers. As expected, results from the quarter reflected our in-progress transition away from the legacy rail operation and the planned wind down of the new APR asset management agreement, which was the primary driver for the revenue in the period. At the end of the same time, we remain on track to exceed our $50 million revenue target for this year, supported by our strategic partnership with Hydro Host and our growing pipeline of AI infrastructure deployments.

Before I get into the exciting updates on our Duos Edge AI and Technology Solutions divisions, I'd like to first update you on our rail technology and Duos Energy subsidiaries. Since our last call, we've continued to make progress on the rail division divestiture. The company is currently going through a fairness opinion on the value of the rail division, and this process is expected to extend into the second quarter. As previously discussed, this was a thoughtful decision that will enable us to redeploy capital, reduce SG&A and focus on higher growth opportunities. We will provide additional details as the progress moves forward.

Turning to the Duos Energy Corporation. We saw a ramp down with reduced reliance on Duos services this quarter. As a reminder, in December of 2024, Duos entered into an asset management agreement with new APR Energy to help find new contracts to engineer, procure, construct and operate fast power plants. This was pivotal for us to make our data center business transition that is currently underway. As we previously discussed, the AMA will conclude later this year, but we will retain 5% equity stake in the parent of APR Energy. In Q1, the company reported $1.55 million in revenue with a cost of goods sold of approximately $544,000. This was a step down from the previous period, and we expect it to continue to wind down in the coming quarters.

Now I'd like to discuss our data center strategy and our newer line of business, Duos Technology Solutions. As we build and deploy data centers at scale, controlling costs and optimizing procurement is critical given the capital-intense nature of this market. As a smaller buyer relative to hyperscalers and large colocation companies, we needed a more efficient way to procure equipment, which led to the creation of the Duos Technology Solutions. This division enables us to reduce procurement costs for our own deployments while creating a new asset-light revenue stream, serving enterprise, hyperscalers and contractor customers.

I am pleased to report that Duos Technology Solutions experienced traction throughout the first quarter. We successfully signed 8 new large data center operators and increased our backlog to approximately $14 million, all of which is expected to ship and be invoiced in 2026. Our pipeline for the Technology Solutions is several orders of magnitude greater than the backlog as of today, giving us an additional confidence in our outlook, specifically in the revenue ramp for the second half of the year. This new line of business [ help ] low overhead is high scalable while also being supported by strong customer commitments. We expect the revenue generated by the Technology Solutions to not only replace the revenue from the new APR AMA, but also provide better margins.

Now I want to shift our discussion to the core of our new data center focused organization, Duos Edge AI. The demand for edge computing and AI infrastructure continues to grow rapidly, and we believe Duos is well positioned to address this demand through our modular data center platform. Following our recent capital raises, including the $65 million in financing completed in March, we have significantly strengthened our balance sheet and are well capitalized to support near-term deployments and future growth. Our focus for the first half of 2026 is to continue executing our sales strategy to acquire new customers in our markets to fully utilize capacity of each EDC.

During the quarter, we made significant progress across 2 key revenue streams: the GPU as a Service and high-power colocation. Under our GPU-as-a-Service agreement with Hydro Host, we expect to deploy 2,304 NVIDIA GPUs across our edge data center platform. This contract represents approximately $176 million in total revenue over a 36-month term with total anticipated revenue of roughly $50 million, projected margins exceeding 80% and approximately $40 million in expected EBITDA.

Importantly, in addition to the GPU-as-aService revenue, this partnership is expected to generate external colocation revenue of approximately $25 million over the term, further enhancing the overall economics of the relationship. We have already received $15 million down payment with an additional $3 million deposit pending currently. We are actively executing on initial deployments. We continue to expect revenue from this agreement to begin ramping in the second half of the year. Separately, we were awarded a high-power colocation contract to deliver 4.8 megawatts of critical compute capacity to support a leading hyperscaler high-density GPU cluster.

Together, these agreements represent a significant commercial inflection point, establishing 2 complementary high-margin revenue streams and validating our edge data center platform at scale. At the same time, we are also seeing increasing demand for high-density data center capacity, driven by AI and advanced compute workloads with demand now measured in megawatts rather than kilowatts. These higher power capacity EDCs should provide much higher monthly recurring revenue for Duos. Duos currently has 10 megawatts contracted and an additional 15 megawatts planned for deployment in 2026, and we continue to expand our pipeline of edge data center opportunities to support growing demand for our AI training, inference and high-performance computing workloads.

Geographically, we're expanding into multiple regions across the country, including Maryland, Iowa, Georgia and Texas as we position the platform to serve both enterprise and hyperscale customers. Within our existing EDCs, we have also begun hosting open houses for the surrounding communities as well as prospective customers to provide an opportunity to explore how edge data centers enable faster connectivity, localized computing power and AI readiness. We've recently announced a few of these communities initiatives and expect to host several more over the coming months.

Since announcing our recent contracts, we have seen strong inbound interest from hyperscalers, new cloud providers and other large-scale compute customers. Supporting our growing backlog and pipeline, we are currently evaluating new power partnerships that will enable green solutions and faster deployments for our megawatt sites and expect to provide exciting updates in this area in the near future.

In closing, we believe Duos is at a pivotal inflection point. We are transitioning to a higher growth, higher-margin business model, building strong visibility through contracted opportunities and pipeline and positioning the company to deliver meaningful revenue and EBITDA growth as we move through 2026.

Now I would like to turn it over to our CFO, Leah Brown, who will go over our financials for the first quarter of 2026. Leah?

Thank you, Doug. This has been an encouraging and productive start to 2026 for Duos. The first quarter included several landmark announcements, strategic financing, strong backlog growth, strategic investment and meaningful progress toward building a stronger, more scalable company. I will now walk through our first quarter 2026 financial performance and highlight key operational drivers that shaped our results.

For Q1 2026, total consolidated revenue was approximately $2.7 million compared to $4.9 million in the first quarter of 2025. Total revenue for Q1 2026 represents an aggregate of approximately $44,000 of technology systems revenue, $562,000 of Technology Solutions revenue, approximately $532,000 in services and consulting revenue $1.5 million from related party services and consulting agreement and approximately $30,000 of hosting revenue. The decrease in total revenues was primarily driven by the planned down draw from the Duos Energy and new APR asset management agreement, the AMA, that Doug mentioned previously.

The company delivered materially stronger gross margin in Q1 2026, generating $1.6 million in gross profit, achieving approximately 59% margin, a significant year-over-year improvement. This was driven by a reduction of cost of goods sold, largely reflecting the impact of the transition of the AMA, the associated decline in related costs. The company also recognized approximately $900,000 of revenue during the first quarter of 2026 and 2025 related to its 5% nonvoting equity interest in the ultimate parent of new APR. As this revenue has no associated cost of revenue, it contributed at a 100% gross margin.

The company reported net loss of approximately $3.5 million for Q1 2026 compared to a net loss of $2.1 million for Q1 2025. The year-over-year increase was primarily driven by lower revenues resulting from reduced scope of services Duos Energy provided under the AMA with new APR as well as higher operating expenses. As we discussed on previous earnings calls, achieving positive adjusted EBITDA in Q3 and Q4 last year were important milestones for the company, reflecting the early benefits of revenue scale and margin improvement.

In Q1 2026, adjusted EBITDA was negative $1.5 million. We did not report adjusted EBITDA in the prior year period, but on a comparable basis, this reflects the impact of the items discussed earlier. While we did not achieve positive adjusted EBITDA in the quarter, we expect improved profitability as revenue ramps in the coming quarters.

Let's shift to the balance sheet. The company ended Q1 2026 with $33 million in cash and cash equivalents. Our cash increased significantly compared to December 31, 2025, as a result of our $65 million capital raise in March, which strengthened liquidity and enhanced our ability to support operations and fully fund our planned investments as part of our agreement with Hydra Host. As of March 31, 2026, Hydra Host has secured a customer for the company, and this customer provided a deposit of $15 million to the company in May 2026 with an additional $3 million currently pending.

Now I'd like to turn to our 2026 outlook. At the end of the first quarter, the company's bookings represented approximately $43.5 million in revenue, of which all is expected to be recognized during the year, included contracted backlog and near-term anticipated awards. In addition, approximately $1.1 million of the contracted Technology Solutions deferred revenue recorded in 2025 will be recorded as revenue in 2026, further supporting the company's performance. Based on these committed contracts and near-term pending orders that are already performing, our scheduled to be executed throughout the course of 2026, the company is reconfirming its expectation for the total revenue in 2026 to exceed $50 million.

Let me briefly walk through how we bridge from approximately $2.7 million of Q1 revenue to our $50 million full year target, which we know is a key focus for our investors. The primary driver is our GPU as a Service business, which we expect to contribute approximately $26 million, largely recognized in the second half of the year as the project comes online and utilization ramps up. In addition, we expect to generate approximately $26 million from our Technology Solutions backlog, which provides a solid base of committed revenue. This includes $2.9 million currently recorded as deferred revenue that will be recognized in the second half of the year.

We also remain on track to recognize $15 million of bookings as revenue in 2026 supported by an additional $25 million in backlog. We also anticipate the balance of guidance to be recognized due to incremental contributions from colocation and infrastructure services, driven by customer expansions, new hosting deployments and continued capacity build-out, along with new customer wins we are actively pursuing.

Together, these visible drivers give us confidence in reaching our full year target. To reiterate, due to the timing of revenue recognition, a significant portion of revenue is expected to be recognized in the second half of the year, during which time we also expect to return to positive adjusted EBITDA.

Doug, I'll now turn it back to you for final comments.

Thank you, Leah. Our first quarter of 2026 reflects continued momentum as we execute on our AI infrastructure strategy and expand our edge data center footprint. The industry recognition we've received this year underscores the strength of our positioning and validates the path we're on. We believe our strategy is aligned with several powerful industry trends, including the rapid growth of AI-driven workloads, increasing demand for high-density and energy-efficient infrastructure, the shift towards secondary markets with available power and a broader move toward modular, faster deployed data center solutions.

At the same time, evolving power, cooling, sustainability requirements are all reshaping the competitive landscape, further reinforcing the importance of the scalable, cost-efficient and speed-to-market solution. We are entering the remainder of 2026 with a focus, discipline and a growing pipeline of opportunities, and we believe we are well positioned to deliver capture the market opportunity.

And with that, I will open up to questions, everyone. Thank you. Operator?

[Operator Instructions] Our first question today is coming from Rafay Khalid from Ascendiant Capital Markets.

This is Rafay for Edward Woo. With your progress in the U.S. data center market, do you have any plans to expand internationally?

Right now, good question because we are getting a lot of inquiries internationally, especially South America. I was actually in London last week, a lot of interest. But right now, our primary focus is to keep proving the model out here in the U.S. and probably stick with doing our 25 megawatts this year and our 50 next year in the U.S.

Great. And one more question. With such strong demand in the U.S., have you seen new competitors enter the market or any change in the competitive landscape?

Actually, there has been some movement. Obviously, Armada is in the business, but there -- it's a different approach. They're more privatized with Microsoft, but you're starting to see the need for inference. You're starting to see the need to compute more locally and the power, obviously, is an issue. So you're starting to see a lot of movement going the modular way and going after that 5 to 10-megawatt range, so you can deploy quicker.

Your next question is coming from Scott Buck from Titan Partners.

Doug, on the Hydra Host GPU as a Service agreement, can you provide the status of what hardware deployment and site readiness look like? Trying to understand whether we start to see some revenue in the third quarter versus even later in the year.

Yes, absolutely. So as of Thursday of last week, Super Micro and NVIDIA have received everything. They're doing the rack and stack at Super Micro. So the cabinets will be fully utilized and shipped on site. So actually, that brings us about a 3-week -- it takes about 3 weeks off of our lead time. So fingers crossed, we're looking at that for it to start building instead of August, July 1. So everything is pointing in that direction. So we should be a month ahead of schedule. That would be a $4.4 million in revenue starting. Sorry, go ahead.

Great. Great. Could we potentially see this partnership expand to other locations?

The Hydra Host partnership?

Yes.

Yes. Yes. What we see with the Hydra Host partnership going forward is, obviously, on this first model, we deploy GPU as a service, right? We actually bought the GPU. That's not our model going forward, but they do have tons of customers, actually over 12 customers that are interested in 5 or 10 meg that other folks have bought the GPU that they need to deploy. So our partnership with Hydra Host will keep growing, and it will grow on the colocation side.

Great. I appreciate that. And then last one for me. You scaled up some costs during the quarter. Do we expect that to continue through the remainder of '26? Or does the current kind of underlying cost infrastructure support the anticipated growth through the end of the year?

The cost of our infrastructure, are you referring to like our $6.5 million per meg...

Sorry, Doug, you took up some sales and marketing costs, I think, in the quarter, and I think maybe a little bit of G&A. So I'm just curious whether you need to continue to add to OpEx to support the top line.

Yes. So let me talk about that real quick. So obviously, all the investors on the call today realize that we are moving the rail business out. So the challenge has been separating the 2. A lot of folks look at us as a rail business and then they dig in and they see what we're doing and then they're extremely excited and happy. So what we're doing is we put a lot of capital in the very beginning of the year and we will do that going into the second quarter to really distance and separate the 2 businesses. So there's been a lot of marketing expense for that. And obviously, Gateway, we've hired, who is doing an excellent job for us, and we can already see the calls coming in correctly and the investors having the right pitch and having the right expectation of what we're doing. So it will fall off around July, August time frame because we're making great progress. So I think we'll slim that down, but that definitely was a need that we had to do.

[Operator Instructions] Our next question is coming from Allen Klee from Maxim Group.

How do you think about the CapEx -- your CapEx spend over the next 12 months?

Yes. So the CapEx spend over the next 12 months, we're looking at deploying our first -- another 5 mega site and roughly, we're at $6.5 million. So roughly $30 million is what we're anticipating in the next 2 quarters to deploy to meet our goal. And then we'll probably deploy another $30 million towards the end of the year to stay on track. We will obviously procure more product for next year to make sure we hit our number for next year. But we are on track. We're well funded to hit our number of the 25 megawatt this year, and we can do that with the funding that we have.

Yes, that's clearly a competitive advantage. And then strategically, it looks like your contract that comes on later this year, it's a 3-year contract. How do you think about what you do with the GPUs after that contract is over? Or do you think there's an option that they could get renewed?

Yes. There's two options there that we're actually looking at. So one, the market is saying, right, and it can change, but the market is saying that those GPUs are going to be worth $50 million to $58 million in that range after the contract is finished. So we have two options. One, we can turn around and sell those GPUs and go back to a straight colo play and then we're out of the GPU business or we can actually go back to that customer, which is common from what we understand. We go back to that customer, and we're not getting 100% of the revenue that we did on the first term, but probably anywhere from 40% to 60% of that normal revenue. So we'll look at both applications. It just depends. If we want the capital to expand, we'll probably sell those GPUs. So we can use that capital to put back into infrastructure.

That's helpful. And you did mention you also have colo opportunities and with the Hydra partnership, it started out with you buying the GPUs. But going forward, you could be getting customers that already have GPUs to deploy. In those type of situations, what would your responsibilities be?

Sure. We actually -- so when we build a 5-megawatt site, a modular 5-megawatt site, say, in Iowa, our responsibility is to bring power, cooling and connectivity. So we are basically a colo just like a QTS or an Equinix, anybody the big brick-and-mortars, we're just very small, and we provide all the services. They bring their own gear, they bring rack and stack. They bring the infrastructure as far as the compute. We provide the infrastructure as far as the power, cooling and the reliability of the 99.999, the backup power, the generators. That's our core business.

Okay. And then -- for those opportunities, do you view them as -- and then I guess you would sign on to longer-term leases with potential customers? Is that the way to think of it?

Correct. Those are typically 5- to 10-year terms. So obviously, we like those terms a lot better.

Okay. Great. No, this is impressive what you're doing. Maybe one other question. Just since I'm a little newer to the story, but for Hydra, could you go through a little bit of what Hydra Host is bringing to the table, what your expertise is?

Yes, absolutely. So Hydra Host is basically a GPU as a service company. They do not own the GPU. Their specialty is selling and supporting the GPU. So basically, they have the, let's say, the hyperscalers as a customer. They basically go to companies like myself or investors or data center operators that want that GPU revenue. So they'll go and buy the GPU. So the customer owns the GPU. Hydra Host just manages the GPU, the install, they manage the sales. So basically, they bring you revenue and they support the GPU. You own the -- you take the hit on buying all the GPU, but in return, you get the revenue, and it's a revenue share. They get a small portion of the revenue. So it's for people that aren't in the GPU business that want to be in the GPU revenue business, basically.

Makes sense. And then in terms of what you said your responsibilities are with colo with power and interconnect and all that. Explain also like who you're partnered with to do those things and what their background is?

Sure. So basically, our equipment is back -- obviously, it's Schneider Electric. We use a lot of Schneider Electric equipment. We use Vertiv. And then in-house, our team in-house, we have roughly 22 folks that what we do is we monitor with our NOCs. We have 2 NOCs. We have one in Jacksonville and one in Amarillo, Texas. Those NOCs monitor the pods 24 hours a day. So that's break fix. That's AC unit goes down. We dispatch within 2 hours. Everything that's built with our pods is just like a Tier 3 data center. It's what's called N+1. So everything has a redundancy factor to it. So you have time to fix it. So if something does go down, it's not hurting the business. It's -- you're still delivering the 99.999. You have time to fix it. That's why we have dual generators. Everything you see is what we call an A and B feed, and we maintain all that.

Now we do sub it out, obviously, to contractors that are in those markets, but we control the dispatch, we control the contracts, we control all the servicing.

Right. And as you go forward and are looking at total opportunities or building out, how -- how are you -- this is my list. How are you strategically thinking about like finding power opportunities?

So when we look for power, we're a different breed, right? So we're not going into a community looking at 100 megawatt. We're going to where power is what we call stranded. So when they build a substation in, say, a city in Iowa, right, that they build a substation, they build it to 20 megawatt because I know that community is going to grow, there is actually extra power there. Our team goes out and finds where there's 5 to 10 meg stranded power and then we go contract it and move quickly.

A lot of times on our 2 sites that we have, basically, they were old bit mining sites. So the power is actually there. They thought they would use a lot of power, they never did. So there's 10 meg available at the site. What we do is we do a lease with the actual landowner, and we'll take that over for 20 years. And the landowner makes money on the power as well. So it's to their benefit to bring somebody like us who actually is going to use the 5 megawatt to 10 megawatt than a bit miner who goes up and down 1 month, it's a meg, 2 months. It's not consistent load. They want to make money off of power, so they like our model.

Next question today is coming from [ Justin Tapper ] from Shay Capital.

Doug, so a question for you the 10 megawatts on the colocation business. So the 10 you've signed, you've guided to 25 this year, so you'll do another 15. And then next year, I think you said 40. Maybe can you just talk about the demand out there? What type of customers want this? Do the same customers that would want, like you mentioned before, the 100-megawatt sites, why would they want something like a 5 or 10 megawatt from you? Maybe you could just help us to sort of bridge the gap in demand there.

Absolutely. Great question. Thanks, Justin. So yes, so what we're looking at in markets right now, let's back up. So when we deployed the first one with Hydra Host, we were starting to get tons of calls for 5 to 10 meg. I've been in this business 30 years. I'm thinking why all of a sudden somebody want 5 or 10 meg when everybody else was looking at gigawatt and 100 meg. It's just -- it's crazy the power they need.

So what's going on is that the 5 to 10 to even 20 meg sector is going to be the hot new sector. That is for training or for inference models. So what's happening is they need to deploy their GPU, they need to deploy it quickly. Everybody knows that people are sitting on GPU. They've bought them, they've invested. Now they need to burn them. So to actually get 5 to 10 meg up quickly, we can do that under 6 months. You can't do that in the other models that people are deploying. So the Microsofts, the Googles of the world, all of them, they're all getting an inference, and they know they need to capture these pockets to do their inferencing.

So the 5 to 10 meg range, I can tell you right now, I look on my wall right here, I have 21 neoclouds. If I had 5 or 10 meg, they would take it. So the need is there. They're trying to build their networks out now for inferencing. It's finally there. People have talked about it for a while. Now they're doing it. You can see press releases from Google, how they're looking at doing 20 sites right now, the same thing. So it's time and they can deploy quicker. And obviously, speed is of the essence right now.

Got it. Great. And then just a follow-up for me, just on the balance sheet. So the $33 million in cash, I think Leah mentioned the $15 million you received prepayment with another $3 million on the way. So if we -- that was in May, so then that's additional cash to the $33 million you filed as of March 31?

Correct.

Correct. And then just one also, too. So a question. So there's on the FTC website over the weekend, there's a filing that Elon Musk purchased APR Energy. One, just can you confirm, is that the APR Energy you have the 5% stake in? And if there's any details you can provide us there would be great.

Yes. I'm not at liberty to say that today, but it is the same, obviously, the same company. But I can't discuss that today. Hopefully, we'll have some news from them shortly.

Next question is coming from Nico Sacchetti from RBC.

Doug, can you hear me this time?

Yes, sir.

Yes, that last question was my first question. I read about. There's no details released, but it looks like that will capitalize for you. Whatever the details are, if this goes through, your 5% of whatever the number is, is going to come into Duos, correct?

Yes, sir.

Like if the sale takes place, is that going to be taxed? Is the number that we just do 5% of whatever the number is, the number that's going to show up on your balance sheet? Do you have any idea? Do you have any carry forward? Like what will that look like?

So just looking at the funds that we would receive, the agreement has a waterfall effect. So it's not a straight calculation just doing a 5% on the transaction.

Sure. I just meant is it from a tax standpoint, not what is the number, but let's just say he buys it for $100 million. I understand we don't know exactly what the 5% is, but the 5%, is it going to be taxed as like a long-term capital gain where you're going to net out an amount of it? That's my question is just to speculate on the number. Obviously, we don't know. I'm saying if it goes through, what would the tax look like? Would you -- would it be a gross or a net number? That's what I'm asking.

So I would say at a high level, we do understand that, that is a capital gain, but we don't want to divulge any definite calculation around that transaction at this time.

But I think I can answer your question a little bit better, Nico. With this movement of the rail business that we're doing, I think we'll have a substantial amount of NOL. So I think we'll be in good shape, but we'll report to you as soon as we know.

Sorry, a substantial amount of what I just didn't catch that.

With the movement of the rail.

You said a substantial amount of what?

Well, NOLs. I mean -- we've lost a lot of money in that division. So...

I mean, behind the scenes, I'm sure you're excited, right, because this is getting the company into the actual company that you want moving forward, correct? Like focused on what you want to be doing on the data center.

That's exactly correct. And if you look at our business, obviously, I came into this role and I brought this product to this business for our shareholders. It's the best thing going in the market right now. We just need to separate and focus like prime example, we -- it has -- everybody knows this on the call. It's been a challenge, right? So we burned through $900,000 on that division. We need to exercise that, and we're doing that here. And I would like to commit to you, I'll have that done as soon as possible. We're almost at the finish line with that. So we're excited about that. We're excited about a bunch of stuff this week. So we're extremely excited about where the company is going. And this just -- things like this just another quiver -- another arrow in our quiver. This is good stuff.

That rolls into my next question. Usually, you're really fired up on these calls, and it seems like it's a little more dampened this call, and that's with the $2.7 million of revenue for the quarter. Obviously, that's not what I think anybody is looking to own the company for is a number like that. So I'm curious, do you think that this is like understanding this pivot is happening, the work that you're doing is maybe you're booking it now, but the revenue isn't recognized yet. Is this like the pivot quarter or quarters? Like is this something that we should expect or should have expected? Or was something that you were expecting where you've booked all of this.

You've got this -- the tech solutions backlog. We just aren't recognizing it in this quarter. So we shouldn't look at $2 million as like, wow, what a flop of a quarter. You are doing work that's going to get paid in the next couple of quarters and moving forward, where, if anything, this number is it immaterial? Or is it worth like questioning this quarter is my question?

Yes. prime example, if I could have shipped all that stuff because that business, you have to ship it, right, to recognize the revenue, I could have booked $14 million this quarter, right? So -- but I made it clear on the last earnings call that we're going to see this revenue start kicking end of second, third and fourth. So -- and that's always been our model. Our model right now, obviously, is keep going, keep doing what we're doing, get these other sites up because once I'd like that Iowa site, that's another 5 megawatt at $2 million a megawatt, right? So then you really start seeing this kick.

What we're doing is exactly what I wanted the team to do is build these, deploy them, keep focused, stay, keep your head down. The infrastructure division keep running. I apologize if I'm not excited, but we are working 24/7, and it is good stuff. I'm sorry, I did that, but we are extremely...

I just -- that was the $2 million. I just want to ask the question. You mentioned Iowa. Where in Iowa is that work happening?

The name of it is called -- I always say it wrong, Muscatine, Iowa. I'll put it out there. We have a press release coming here in the next day or 2. It's right outside of Illinois. So I still get that low latency down to Surmac, which is important. And our hyperscale customer wants that location, and they want the one in Texas as well. The one in Texas is right outside of Amarillo. So we're partnering now with somebody that is going to be a great partner of ours moving forward. They're already a partner.

It's not a major metro area in Iowa take it.

No, no. But yes, but you're only 20 miles out of a major market area. And that's where the power was stranded. That's where the power is there. I -- literally, if I had 10 megawatt worth of infrastructure like coming off the line, I could like 10 megawatts there today. It's there. transmission down. It's beautiful.

Okay. Okay. I think I have two2 more questions. So just around this whole backlog like revenue, the fact that you do the work now, but it's not showing up. And then I saw some backlog things. Even earlier in the Q&A, you were talking about deploying 30 megs there's a lot of like language barrier for like are we deploying something? What does that translate into revenue? So just to try to -- for the sake of getting things like understandable. And even like in the release, it said after the quarter, you received a $15 million prepayment from a customer.

So like I'm just trying to make sense of the different wording and what numbers are what -- I am hopeful like the backlog numbers look like they were broken down into booked backlog, data center was $43.5 million. Tech solutions looked like it was $14 million. Are those numbers right, that sounds right?

Yes, absolutely.

So that just means that the $43.5 million and the $14 million are booked business for what type of time frame? Or is there a time frame...

This year. Yes.

Is that something that you will start to report moving forward as like a broken down like backlog? Those -- it would be very helpful if you did. So if you would, this really helps clear up the story. So then the $43.5 million in backlog, is that inclusive of the $15 million prepayment?

So the $15 million prepayment, which there's going to be an additional $3 million that is pending right now, we will recognize that over the life of the contract. So the 3-year customer contract, you won't see $18 million being booked immediately. That will be over the life of the customer contract.

So my question is the $15 million prepayment that you highlighted in the release, is that like cash flow coming in? And is that included in -- so is that different than your reported booked backlog?

That is included in our reported backlog. But that will not be recognized until for the life of the contract, which is 3 years.

So yes, you got what I'm saying, right, is just to try to make sense and get the clearest picture. And you highlighted the $15 million prepayment in the call. And then I'm just not sure where that fits in with some of the other numbers. And then the guide is like Doug, is on the megawatts. And so there's a megawatt guide and then there's also a revenue guide. And so I just want to make sure that we're always talking about the same things, and it's not -- we're not talking about megawatts booked and built versus revenue because that -- I feel like that pendulum kind of swings back and forth with the conversation.

So obviously, for the sake of getting everyone on the same page to get your stock to be valued with all of these good things that you're doing, to try to get the picture as clear as possible. And it sounds like we're on the cusp of maybe this railcar and this gas-powered turbine business being removed. And I think that will only help clean up the situation. So.

Absolutely. Absolutely.

Okay. Last one is just around like the actual units. So you mentioned competition, more competition. You mentioned Armada on this call. You mentioned there's a lot of like interest in this 5 to 10-megawatt range. And that, to me, is semi-new information just from the standpoint of you guys are the only ones really doing it. The clean room is this huge competitive advantage. So I just want to clear up like -- I watch a video of them with a semi mobile data center and someone is lowering one onto a Navy ship. Like is that a thing? Is it real?

Yes. Nico, it's real -- it's a totally different application that we're doing. So they're really -- when I say there's people going in the market, I was just talking more modular, right? So they're not going to deploy 3 meg, 4 meg, 5 meg. They're not doing that. And they're not for multi-customer, right? They're just for one privatized customer, do a lot for the government. So I would just use that as an example.

But you see a lot now if you go out in the industry and you're in it like us, you'll see a lot of 3D renderings. You'll see a lot of people saying, look, we're doing inference, we're doing this. No one's actually done it. And that's why the 2 main hyperscalers that came to our facility, they toured last week Corpus Christi, and they went down there to physically see it. Now that pod is not the high-density pod. They wanted to see physical work done, and they wanted to see how we do -- how we build the quality of work, and they both signed off on it.

So that's how we're winning the market is we've done this. I've done this 9 years, 10 years now. I've put over 30 of them on the ground in my career, you can go look at the first one, you can look at the one we just put down 3 weeks ago. So we do know what we're doing. And it's not rocket science, but we've got it down, right? We've got it down.

So what you -- your comment was more of a positive that there's a lot more interest in this modular type of idea rather than there's a lot more like competition coming?

Yes. I'm positive. The reason why I'm positive, Nico, is because of this. One, it brings hype to the industry, right? Everybody is starting to look at it, people are starting to make moves. The second is I'll go up against any of them every day. And if you're part of my sales organization, I have one trick. Here's my trick. When we go to sell somebody, like this is how we won our first hyper, I said, look, I'll pay for you to go see their pod. I'll fly you there. We'll take a tour together and then we'll go see mine. And if there is no pod to see, you have to sign with me, and I haven't lost yet.

This is what I meant by the fired up. This is what I'm talking.

Sorry.

You know what I mean like I'll go up against anybody tells me that you're confident in your unit. And so what I meant by who's real is like what you just said, like there's a lot of prototypes, but who can actually make -- who can manufacture this at scale? Like is it you and Armada? Is that really the only ones for this place where you would compete? And then what -- is there any difference between you and Armada? Is it the clean room? Is that enough to protect you if this -- if there's not really barriers to making a rectangular box like and there's all this interest, is that clean room enough to protect you?

Yes, clean room is enough to protect, but they're using more of a shipping container. And I started my career with those 10 years ago. You can't do high density in there. So these are -- what they're doing is 1 customer, 1 to 2 cabinets. My customers, nobody wants that. It's really for -- let's just say Johnson & Johnson or a hospital or a manufacturing plant. They just need a small one for their own privatized compute and AI. That's what they do. So they're in a different market, but they are deploying modular. That's it. So we're not even apples-to-apples. I just wanted to mention that there's somebody doing modular. A lot of people see, oh, somebody else is doing it. It's not the same thing at all, and it's more privatized. But it does give hype out there, right? And I like that.

No, you're right. If you Google, the stuff is everywhere. So yes, so you mentioned that you've done 30 of these. You also mentioned being able to sell these GPUs at the end of the contract if needed. And I'm pretty sure somewhere over in the last 1.5 years, Waco, you mentioned that the first data center you ever built one of these is still packed with that older technology. It's still fully leased out. Do you really think that you would ever sell the GPUs? I mean, unless something goofy happened with AI, I mean, someone would want that based on the comment about your first one build 20 years ago, whatever it was.

Absolutely, somebody going to want. So in full disclosure, there's people want -- they're trying to buy our Hydra Host contract right now. You kidding me? We get calls. I'm telling you right now, gentlemen, if I had enough capital to deploy 10 meg sites, they would be full. I would put them up for auction on a Tuesday, and they would all be gone by Thursday.

Well, that's got to be -- there's got to be someone that's hearing that and understanding that a 10-megawatt unit produces revenue that would be worth putting up, what, 3 years' worth of that capital to borrow it to or however that structured. Anyway, you don't need to answer that. That's more of a thought. Yes, go ahead, if you want to.

Remember our strategy. Our strategy was to do this and to show that we can do this, number one, and we can house GPU, and we can deploy quickly. And whose eyes did we want to get on this? We want to get the NVIDIA, Super Micro, those folks because to be honest with you, I'm not going out for any -- I don't want to go out for any more equity. I don't. If I can't have somebody backstop me like an NVIDIA or a Dell or somebody like that, which they see the need, number one, they're seeing it now, and you're going to start seeing them do this. I want to be first in line because we're the first guys out there holding a flag saying, look, come look at our stuff. It's real. We're doing it. You can talk to our customer. We have $144 million worth of GPU. So we're in.

Well, if anything -- if I look at you and think why would you be talking to NVIDIA, is it -- would it be correct to say you would help NVIDIA because they have this backlog of GPUs that their customers have bought but can't take delivery of because they have nowhere to put them, and you can do these things in 120 days where these things are being pushed back on being built in these rural areas, the big data centers. If anything, they're incentivized to help you get these things built because it actually releases their own backlog to them to recognize?

You got it. You've been sneaking in my office reading my playbook. But yes, that's it.

No, that's right. It just logically makes sense. These big data centers are getting pushed back and say, well, you guys can do them quicker anyways. There's advantage to an NVIDIA or someone like that is the reality.

Okay. Last question is on power. At some point, with all this stuff being built, we're going to hit the capacity of our electrical grid. I'm sure you know more about this than I do. I'm hoping that you do. What would -- like something has to happen if this really is going to continue at the pace that they're saying it will for a power. And so I've heard a lot of ideas out there. One of them that's like this holy grail but has a lot of like skepticism is nuclear with like this nuclear SMR, whatever they call it, that's like a power source.

Number one, is that even a reality? Number two, what do you think will happen when we hit the electrical grid capacity? And then number three is like my understanding of these things is like, yes, it's great energy and efficient and low power, but it's also like a bomb that would be sitting next to your hardware, like the most important stuff you want to save. So even if it works in practice, would people even use it?

Yes. So here's our secret, right? The SMRs are going to take a long time, right? I don't see a lot of communities allowing a nuclear mini plant coming in. I think that's years out. It would be a good idea if it happens years out. We're not looking that far out. We're looking for today. So if you noticed and you heard on my earnings call, I talked about an alternative green company, right? Well, you've seen the guys like at Bloom that have done this for Google just basically bought out their production for the next 2 years. Those are fired on natural gas. They can deploy on our side probably 6 months, 6 to 7 months. They can bring 10-megawatt up where you're not touching the grid at all and it's somewhat green. It's good on the environment. It's not bad for the environment. It doesn't use water. It's all natural gas.

Those are the type of partnerships and things that we're pushing to go down those paths. And hopefully, you'll hear something soon. But it's -- that's the way to go. I'm telling you right now because it doesn't touch the local community, and you can deploy those and it takes natural gas.

Sure. Well, that's your next idea after this clean room is you should patent this building with an electrical windmill on top of the solar panels. And then I mean even the pushback on the nuclear, even if it worked, it's like -- I think it's just -- that's what I was asking is just like public perception where like your boiler and they think, well, that's safe or that boilers blow up all the time. So anyway...

I can take that offline. Yes.

Our next question is coming from [ Richard Jackson ] from Strategic Assets.

That last conversation was extremely helpful. Most of my questions were covered, but I got two more here, one short, one long. You said that when you -- when the client owns the NVIDIA chips, your responsibility is the maintenance, the power and the connection. I'm assuming that means it's your financial responsibility to connect these new centers with fiber.

Yes, yes. So the fiber carriers come. So when we find a site, we make sure that it's rich in fiber around there, traditionally, long-haul fiber or buy a highway where that's where all the fiber runs down. And then the carrier actually brings it in because once the customer says he's there, the carriers come because they use so much bandwidth. It's worth them to build into the infrastructure, and they need multiple paths. So we actually don't own the fiber. We don't own the connectivity. The carrier does and they sell directly to the customer. But that's what brings them in. Once you build power and the customer signs, that's when they come in.

Okay. So the fiber is not your responsibility, but you obviously strategically place these places where the cost of the carrier is minimal to the contract, correct?

Exactly. Exactly correct.

Okay. That's helpful. By the way, I was at Corpus Christi when it was announced and that really helped me crystallize going on here. Bill Radford, treasured employee got there. He's also...

Also, you actually went to the site?

I did. I did. Trying to understand what the hell you're doing here.

Excellent. Thank you. So what were your thoughts? And a lot of our investors don't get the opportunity to go to see the actual pods. What was your impression?

The two things that I found most enlightening was, number one, you don't use water. It's a pure air cooling system, but the way Bill structures the stacks is explaining that air can do what it typically can't in other centers because of the way he has the airflow.

That's right. [indiscernible] containment.

But help me understand how you get away with that and still provide 100% availability. And I understood why the marginal costs are so low. The center pretty much runs itself. You just got to react to problems. Anyway, that was very helpful for me. But I'm having a tough time modeling all this and maybe a phone call offline would be better, but...

Yes. call me that way, we can take our time and go through it, but that would be great. We'd love to have that call.

Okay. Great. Let me just throw out three assumptions I got. You tell me if I'm way off on these, all right? So it costs somewhere between $1 million to $1.4 million to build these 10-megawatt centers, correct?

No. No. Per megawatt, it's about $6.5 million per megawatt. The $1.4 million are for the 300 kW ones.

$5 million per megawatt. Okay. And you're trying to lease these out and it doesn't seem like it's too difficult to do it within a reasonable amount of time, a lease rate that's in the ballpark of 30% to 50% of that construction cost. Is that about right?

Yes, it's a little under $2 million per megawatt in revenue.

Okay. Okay. So it's costing you 6.5, you're generating $2. Okay. And that equipment look pretty sturdy. I mean, how long do you think those things are good for ballpark?

They're good. Your generators, everything else is good for 20 years. The only thing that you're going to swap out of your batteries, right, your UPS, those batteries are got an 8- to 10-year life. So when you swap those out, you're looking at another infusion of probably, let's say, a high side $80,000.

Okay. Okay. Now I'm getting excited. Okay. Now on the revenues that you're posting, are these revenues people paid you to build your centers? Or are these monthly lease revenues? Or is it all mixed stuff and I should flag over line by line?

No, it's what they pay us to lease. Traditionally, there's a onetime install charge that we charge a customer to move them in. But our model, our revenue comes from reoccurring. So that's what the customer pays to be in that facility a month. And they pay based on power. So how much power they use is how much you can base their revenue on.

So the revenue you're targeting at the end of the year, how much that's going to be repeated every year? Half, 80% [indiscernible] right?

Yes. Yes, go ahead.

Yes. The recurring revenue is going to be through the life of the contract. So for our GPU as a Service, that's a 3-year contract. And then most of our colocation contracts are anywhere from 5 to 7 years. So that's recurring.

Yes. So the only -- the ones that aren't recurring are obviously the infrastructure division side. That's the equipment side where we sell equipment to data center operators like ourselves. And you'll see that...

I love that you said you're hoping to not go to equity anymore to finance this. And I understand things happen. But in your mind, when do you think the monthly free cash flow self-finances this growth, 2 years out, 4 years out?

Well, in our business is a very CapEx, and when you're in the data center business, it's a very CapEx sense business, right? So it just depends on your model. My model is to keep growing. So what we're going to do, and that -- this is why we're doing what we're doing, we're going to go after debt financing. We're almost there as a company. After we get another one of these on the ground, we should be able to do that all day long. With our model and the customers we're bringing on, that shouldn't be an issue.

So that's how we're going to fund this business going forward because we're always going to be building facilities because you want to. We're like a REIT, right? We want to have as much assets out there as possible because the value there, prime example, I build that site in Iowa and I build 10 meg there in 4 years, 3 years. Say those contracts are 5-year deals. In 5 years, say that customer moves out. I've got 10 megawatts available there. Every data center, big brick-and-mortar data center that I've owned and sold over the years, not one of them have gone the other way. And every one of them is at capacity. So once you own the power and the infrastructure, it's golden.

Okay. That's very reassuring. So I'm walking away from this thinking, and I would like to take your offer up on just looking at 3 or 4 different forecasts.

That's what we do -- you call us any time.

Within a year or 2, you're generating enough cash flow where you're making a margin of, let's say, at least 15 and you're financing hopefully under 10 with debt. Am I in the ballpark on that?

Yes, we're at 15, we're in the wrong business. Yes.

Okay. Good. I'm glad to hear that. So I'm thinking more should be 25% or better, right?

9% we're financing that, but we should be in the 70% range -- the margin.

Our next question is coming from Nathan Frankovitz from Cantor Fitzgerald.

I think you touched on this a bit earlier, but if you could just add a bit more color on the success of the high-power 1 to 2.5 EDCs. Can you just talk a bit more about why customers would want these versus what we see a lot of other companies talking about with the mega data centers at 100 megawatts plus. Like what kind of companies would want these and what the end use is for?

Sure. So obviously, number one, these big facilities you see are these big huge training facilities, right, that you're building. These are huge facilities that are out way out there, right? So now with inference, you have to be where the data is, right? These aren't training. These are inference, right? So they have to compute where the -- what we call the eyeballs are. So where the data is forming and transmitting, it's got to be close to that. So that's why you're starting to see the Googles of the world and the [indiscernible] and everybody else deploying these inference sites. And you have to do that somewhat close to the data.

So that's why you'll see us going into these Tier 3 markets. Prime example, Corpus Christi. Corpus Christi, I can still get 5 milliseconds to Houston. So Amarillo, the same thing, Waco, those markets, you can still get that. And in those markets, they need inference as well. So the local hospital, the local government, gaming, all that stuff, that you're starting to see that the data needs to be where the eyeballs are. And we've seen it for years, but now it's really starting to kick in where the amounts of massive data and compute have to be done localized. And that's why before back in the day, a cabinet was max 10 kW. Well, the type of compute you have now, it's 100 kW a cabinet. You can't put that in a normal data center. So you have to build for that category.

So that's why you see all these new builds going up for this new inference. And you're going to see a lot. And I'm keeping my eye close on Google because I would like to get into Google and say, look, we can do this for you. You're doing it anyway. You don't want to be in this game. We do it. We do it well. You just want to be an OpEx model, not a CapEx model. We can do that. They just want to compute. They don't want to have to maintain facilities.

So obviously, it's going to grow and everything -- you guys are one of the best at it. Obviously, you guys know this business better than most. And you see where it's going as far as inference and how you can deploy a lot quicker. So the neoclouds of the world are -- want to get their GPU out burning, and this is an even faster way for them to do that as well, if that makes sense.

Yes. That's helpful and I appreciate that. And then I guess, I think you already spoke to the revenue per megawatt on colo. But in terms of the economics of scaling, can you just touch again on EBITDA margins based on that CapEx and revenue? EBITDA margin per megawatt?

Sure.

Sure. So our EBITDA margins for full year is 17% and adjusted EBITDA is 27% full year consolidated.

Great. But then specifically to the colocation business, do you have that broken out?

Yes. For a high-powered colocation, our EBITDA margins are about 80%. GPU as a service is around there as well.

Next question is coming from [ Caroline Gangi ] from [indiscernible].

Most of my questions answered. Congratulations on the quarter. So it sounds just like just to kind of sum this up, so in my head, you're going to be going from 25 to 40 megawatts this year to the next year. And you made the comment that you can sell significantly more systems if you had capital, and you mentioned you would hit the debt market for that. Do you think that you would be able to find a strategic investor? And then finally, I think part of the confusion with the stock is that the company is kind of misunderstood. It's a lot of moving parts. You're changing business models, divesting certain businesses, when do you think you'll get coverage on the -- for the stock -- equity coverage?

Absolutely. Thank you for the questions. To answer that last question quickly, I think soon because what's going on now is people are actually starting to see our deployments. They're starting to see the revenue come in. And obviously, once this Hydra Host deal hits, hopefully, in the next 30, 40 business days, that will really drive. We have talked to a bunch of analysts that we're in the middle of with right now that have come in and they've done a deep dive. Now they understand -- even the analysts didn't understand what we do, and they're helping us get the story out.

So I would predict, hopefully, we see something in the next 30 days. And there's going to be some other drivers that are coming up that are going to push them to come see us. So I'm looking forward to that as well.

Okay. Got it. And then my other question about a strategic investor. Is that something that's possible instead of having to raise money?

Absolutely. So that's why we're -- I want to say we're still in our proof-of-concept model, but we're really not, right? We're executing now. So now is the time, and this has been my job to get in front of the NVIDIAs of the world that could backstop us on something like this because they like what we're doing. They see that inference obviously is the way to go. They want to sell their GPU. They also have a lot of GPU customers that are sitting on, they want to move those so they can buy more. So that would be one of my strategic partners, but also these folks that back the big data centers, right, Blackstone and all the big guys DigitalBridge, they all have stakes in these big data centers, right, Vantage and DataBank.

Well, what's going to happen with those data centers? They're going to look at us as a hub and spoke. They obviously are doing training modules, but they are going to want those inference modules out there. So when I say hub and spoke, you've got the main data centers in Dallas, but you don't have anything in Corpus Christi. You don't have anything in Waco in these suburbs in these outer smaller Tier 3 markets, Tier 2 markets.

So you put these out there and they're going to buy them because now they have their hub-and-spoke model where they can sell their services there. And that customer, 90% of the time, that customer is in that pod is in their core data center. So I see -- just like my first company, EdgePresence, we did this before, and DataBank funded us. DataBank funded us $35 million to prove that concept out. Unfortunately, we were bought before we could prove that out. But that's where I see this partnership coming, and it makes complete sense and it's -- it would make complete sense to do it that way.

Great. I'm looking forward to that coverage just so I can understand it better and so can the Street.

Me too, trust me. There's only so many calls I can do a day and I still got to sell. Thank you for your question. Thank you.

We reached the end of our question-and-answer session. I'd like to turn the floor back over to Mr. Recker for any further or closing comments.

Well, I want to thank everybody. And hopefully, you got a good vision of where we're going, and we are running 150%. And I think you should be proud of us. We'll keep going, and we're excited to see some good announcements this week as well. So I look forward to talking to each one of you. Please call me any time with questions. I'm here all the time. Thank you so much for your support. We look forward to talking to you soon. Thank you so much.

Thank you. Before we conclude today's call, I'd 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 and 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 as Duos' filings with the SEC.

Thank you for joining us today for Duos Technologies Group's First Quarter 2026 Earnings Call. You may now disconnect.

Thank you.

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. [Operator Instructions] 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 Recker. Sir, please proceed.

Welcome, everyone, and 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 review press releases and our 10-K filing 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 it 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 I 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 the railcar inspection portal. In the previous calls, we have 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 Duos 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 divest to freeze up company resources and cut significant SG&A expenses. For more details will be made available on a few divestitures in the near future.

Second, I would like to talk about Duos Energy Corporation. As many of you may remember from last year, Duos entered into an asset management agreement with new APR Energy to help find new contracts to engineer, procure, construct and operate fast power plants. Duos 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, that Duos will remain -- 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 colocation 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 a 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 colocation companies, low-voltage contractors and general contractors across the United States.

I'm very pleased to report that through the first quarter, Duos 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 generator 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 an growth of Duos Technologies Group. Kristen has built a seasoned team with the talent and short 3-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.

Duos 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 5 new EDCs in production with plans for an additional 20 megawatts of deployed capacity by year-end.

Having inventory for our EDCs to deploy in critical -- is crucial for our continued growth and success in this market. The Duos Edge AI story and its initial success is garnering tremendous excitement in 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-power compute needs.

While Duos Edge AI is committed to sticking 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 are formed organizations all across the country. There is such a shortage of data center space and power that companies are turning to Duos Edge AI. So we are going to start to build our new EDCs with greater power capacity to meet this demand. We have shown in the market we can deploy at lower cost with an incredibly faster speed to market. Duos Edge AI will now be able to cater to customers that have the high densities 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 colocation service for AI infrastructure. Under our GPU-as-a-Service agreement, Duos 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% and expected annual EBITDA of approximately $40 million.

Separately, Duos was awarded a high-power colocation contract to deliver 4.8 megawatts of critical compute power to support a leading hyperscalers high-density NVIDIA GPU cluster, housed within Duos edge data centers. This contract represents Duos entry into the market of high-power colocation 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?

Thank you, Doug. This has been an exciting year for Duos. 2025 is a year marked by significant revenue growth, strategic investments and meaningful progress towards 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 2025.

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 gross margin in 2025 and 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've built on that progress in Q4, delivering positive adjusted EBITDA for the second consecutive quarter. This consistency is meaningful and demonstrates that the Q3 results was not a onetime 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 gross margin and more fee 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 with 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 increased year-over-year, reflecting continued investments 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 strengthened 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 Duos Technologies Group. We significantly scaled revenue, strengthened our liquidity position and make strategic investments that position 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 million to $55 million in total revenue across all business lines. This forecast reflects growth from both our core operations and newer initiatives, which Doug 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 period 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.

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-focused strategy is the new Duos 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 recognitions 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 passed. We are taking steps to ensure the new messaging is related 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 Instructions] Our first question comes from the line of Ed Woo with Ascendiant Capital Markets.

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

That's a great question, and that's why we're -- 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 Crusoe. 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 GPUs are extremely sensitive to particles and 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 make chips, everybody 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 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 go look at physically look at their pod. We had a customer fly in from China last week, and they flew into Corpus Christi and toward 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 markets that can physically go there to see our customers see year burning and see how the facility works. So we welcome the competition, but we're strong where we sit.

That sounds good. And my last question is kind of like a longer-term plan. I know you guys 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?

Yes. 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.

And to your international question, once we start deploying at scale here and move on, we'll be open to international. But right now, our #1 focus is in the U.S. into the Tier 3 and Tier 4 markets.

Our next question comes from the line of Dan Weston with WestCap Management.

Congrats on the quarter. Doug, a couple of quick points of clarification. The -- I think you mentioned you were expecting to have -- or you do have 5 new EDCs in production to be deployed by year-end, if I heard that right. Are those 5 EDCs specific to the GPU as a service contract you just signed?

No, those 5 EDCs are committed to markets that have been contracted. So there are markets in Georgia, and we're working with the utility to deploy on their network as well. So those are our normal pods that we deploy in that we've deployed. Like the 15 we've deployed, they're identical. So yes. And let me give some clarification because this might help answer a lot of questions for other folks, too. We're still building our same model. Our core is you go after the education, health care 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 more at scale, so we can bring in higher density users. So yes, so that's the model.

Got it. 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 expect it to generate revenue.

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

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

So yes, 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.

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?

Absolutely. So the majority of our PPE is our Edge Data Center. So we have 15 data centers, and we've also started prebuying for the next lot that is coming online in 2026. So you -- the majority of that. Yes.

Great stuff. And then last one for me, and I'll jump back in. Doug, I think you mentioned that you had 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?

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 that -- 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 build another section of pods to get to the 10 meg. So another 5 meg cluster of pods.

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

Yes. So there's 3 acres there. And what we've noticed is 3 acres is plenty. Basically, if you look at our model, we're deploying 5 meg it's really like looking at 5 school buses.

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?

Yes. The actual -- there's 2 customers that are -- yes, absolutely. They're looking at 5 more sites at 5 megs with us right now. Obviously, we've researched, we found 5 sites with the power there, but we're going to get this one installed and the one in Iowa installed first, and 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 -- we had 21 inquiries on 5 to 10 meg sites. The demand in this niche is unbelievable. So like I said, I'm not really 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 million to $12 million just in GPU in a pod. So a clean room I don't understand why you wouldn't go to it, somebody that has a clean room. It doesn't cost them more.

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

I'm not sure. It's a very, very, very strict NDA right now. So I think maybe if we -- once we prove ourselves to them, it might be an option. But put it this way, they're Tier 1, so we're good.

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. Yes, is that typical for this business where the booking of the contract could take several quarters to actually run through the revenue line?

Yes, exactly. So let me give you an example. So we sell a lot of -- and we have a lot of -- our funnel is huge. So we have a lot of like cabinet, PDUs fiber connectors, those are 60 days, 90 days max, right? Well, we booked that. We ship it out quickly. But UPSs and other switch gears are 6 to 8, some of them are 9 months out. So that's -- we had a big booking towards the end of the year, but it took 3 months for us to bill it, right? So A lot of the bigger products takes 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 build 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.

That's incredible. Congrats to everybody.

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

Our next question comes from the line of Nico Sacchetti with RBC.

Maybe I'll piggyback on Dan's last question here. So not only is that $10 million of the distribution business going actually recognizing revenue. Is $10 million like a quarter a typical run rate for that business? Is that quite huge quarter? Is that low? Obviously, not looking for a definitive guidance, just trying to get an idea of what you're expecting or what that capability [indiscernible] just like a normalized situation.

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

Sorry, just to clarify, you said the funnel like annual capacity. Is that like your high-end number that you could do in...

The $10 million was over 2 months, and that was when they first started. So obviously, we're looking at a lot greater than that.

yes, going back in and out will hold on a little better. I thought you said the funnel is $150 million. Is that like an annual like TAM or capacity that you could do? Did I hear that number?

Yes, that number is from two sales reps that we hired that's in their funnel for this year -- and that's only for 3 months of doing business. We just started that group. I mean, look, on data center buys $1.6 billion worth of product, right? So that's normal, believe it or not, in this industry.

So it would be fair to say if there was any kind of negative perception around the loss of that $20 million 2-year and the opportunity substantially higher. You mentioned that replacing that revenue, but it sounds like this could be a multiple of that in a normalized situation.

That's exactly right. That's why we brought it on. And Nico, 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 million 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.

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.

Any thought of removing the lower cost and just go number a better margin profile.

Right. But we can deploy quicker. Remember that. So in the CapEx isn't as intense. So you're deploying 5 megs at $25 million. It's a big difference.

So a lot of what I have are just clarification questions. Obviously, there's a lot of moving parts. I'm just trying to make sense of what was the company you have the AMA, the equity software and then it's going towards this modular data center, school, hospital, anchor tenant, the metrics around that were very black and white like cost, what the revenue opportunity is. And then it seems like we're kind of pivoting again. And so I just want to make a sense of all of these moving parts. And maybe the -- it would be helpful if could clarify the deck that you have available on your website from February, I think it is. Is this like good information? There's just 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 set in stone the numbers were off of that specific presentation.

Yes. 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 -- 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 2 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, and the revenue is a lot higher, obviously, because they're taking power. We make money off of power space and cross connects, right? So the more power we sell, the more money we make.

So -- but obviously, the CapEx goes up in the pod cost. The model -- 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, 1 meg, you're at $1 million a year. So at 4.8 megawatts, you're now at almost $1 million 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.

So when you say the same model, you've talked about just the original, the standard version of this going on kind of like Tier 2, Tier 3 markets or rural areas where there is like 500 miles data center, what's the...

Nico, you're cutting out, it's hard to hear you.

I think I'm having some bad service here. I just want to get like do you have -- it sounds like it totally depends on the unit for what the metrics are or it was much more standardized with the other versions or the model and then when you say the same model, are they going in certain locations where instead of being a colocation where you still have the hospital and the school 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 that...

Yes, that's -- you're exactly right, Nico, that's exactly right. So our core customers are our anchor customers, which are education, health care and then enterprise in that market, right? The carriers coming in to take space so they can peer and cross connect to each other. That's the best -- someone's cross talking, I'm sorry about that. But yes, Nicco, if you can hear me. That's the original model. 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, 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 stream in 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.

Our next question comes from the line of Carl Wiese with Grow Funds.

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

We'll talk real quick. Let me take over the rail. So the Rail business, we're hoping to offload or decommission that 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 Leah on your numbers there.

Sure. So Carl, good afternoon. Yes, so we should expect to see gross margin improve in 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 around 76%.

Gross margin shouldn't it -- well, the data centers themselves are what, 70 to 80 type gross margins.

Yes, exactly. So we should see around -- for gross margin, you're about $7 million, $6 million towards the end of the year. Yes, exactly. So just 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.

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

The OpEx, yes.

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

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 take -- signed contracts. I think that is going to be strong for the next 3 to 4 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 we're 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 6G, we're at 5G, we're going to 6G now. They need the 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 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 2 meg worth of power, 2 meg, 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 Flexential. That's where the house. They don't go to a hyperscaler. 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 5 to 10 years focusing on that 10 to 15-megawatt range. So we have a long haul, but we do have to build quickly.

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

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

Sure. On the GPU model, let me back up. The goal for this year is to deploy 25-megawatt. Now that can be through 300 kW pod 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 is 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.

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.

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.

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. The earnings call contains forward-looking statements within the meaning of the 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'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 and Duos on annual report on Form 10-K which is expressed 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 Fourth Quarter and Full Year 2025 Earnings Call. You may now disconnect.

Good afternoon. Welcome to Duos Technologies Third Quarter 2025 Earnings Conference Call.

Joining us for today's event are Duos' 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. 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 are 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 #1 thing that is limiting this growth is the lack of power. That's obviously good news for Duos 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 materially impact the local utility grid customers.

Duos is perfectly positioned to address this demand, and we are in discussions with 2 to 3 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 earn through our Asset Management Agreement with APR Energy, along with a 5% equity stake have given us the financial ability to execute this pivot to 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 Railcar inspection portal business, which has remained largely flat for us. The end state for 2026 will be a stand-alone Duos business that is profitable and 100% focused on the data center space with 2 to 3 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 the CFO role effective November 15. 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 constant 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 adviser 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 #2 finance leader for the last 3 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 3 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' growth this 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' 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, and I'll be happy to take questions at the end of our formal remarks. Adrian?

Thank you, Chuck. As we've 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 begun 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 15.

Leah has been the mainstay of the Duos financial team for the past 3 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, 1 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.

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 9 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 1 quarter earlier than originally anticipated. We continue to evaluate our cost structure across the 3 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 9 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 9 months ended 2025, total revenues increased 202% 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 9 months ended 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 9 months ended 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 3 months ended September 30, 2025, that was related to the company's 5% nonvoting equity interest in the ultimate parent of APR, which carried no associated costs 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 9 months ended 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 noncash stock-based compensation related to restricted stock granted to the executive team on January 1, 2025, under their new employment agreements, which include a 3-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 & Development expenses declined by 28%, 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 9 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 9 months ended 2025, net loss totaled $6.64 million or negative $0.49 per share compared to a net loss of $7.36 million or negative $0.98 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, 1 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 GAAP net loss of just over $1.5 million, including approximately $560,000 in depreciation and interest expense, plus about $969,000 in noncash 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 $4 million to $5 million in near-term Awards & 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, 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 3 subsidiaries to be between $28 million and $30 million. Having achieved adjusted EBITDA profitability in Q3, we are 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.

Thank you very much, Leah. I look forward to seeing you take charge as the 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 2 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 accretive business in the data center market. As President of Duos, I have asked Doug to oversee the operational growth and transition as we descope 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.

Thanks, Chuck, and welcome, shareholders and analysts to participating on this call. Let me first introduce myself. I've spent the last majority of the last 30 years working in the data center world. My experience covers both the colocation space as the founder of Colo5 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 Duos team in 2024, I've had a relationship with the company going back a number of years, starting when Duos was a client of mine at Colo5. When Duos created the Railcar 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 and 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 3 and Tier 4 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 was our first deployment for region 16 Education Service Center in Amarillo, Texas. Region 16 serves 60 school districts and 3 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 modular Duos Edge facility, they've improved performance, reliability and uptime, all while cutting their IT budget and establishing reliable connectivity to a 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 U.S. patent, the Entryway 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 not only as a clean room to protect the hardware with the pods, but also the security mantrap 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, health care 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 Duos' 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 6 in place today, 4 more to be installed this month, and the final 5 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 operational capabilities to support this expansion.

The staffing addition includes operations, sales, and marketing with a focus on specific industries such as the telecommunications and fiber companies, and further IT technical support. These additional resources are largely funded by already implemented cutbacks in the other Duos markets, notably Grail.

Turning to the long-term growth of Duos. I'm conscious, that although the 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 establish 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 an expansion of our effort in the overall data center market. As you all no doubt are aware, there is a major push for the largest companies in the U.S. to invest significant amounts of capital in building out data center services, expected demand for AI, and the associated processing of data related to that.

Our newest business will be called Duos 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 while it's early stages for those efforts. We expect a fast start with this 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 will announce in the coming weeks.

In conclusion, our business is commercially and financially in a position to take advantage of the ongoing demand coming from the data center growth driven by the expected need for 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, institutions, 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 will now open the call for questions.

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 assign an appropriate answer.

The first question is coming in. How is the 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?

Yes, 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 in 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 that 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 turned it over to Doug as it relates to our Duos.

Right. That's great. The core, really, what we're doing is we're building out the network infrastructure in these Tier 3 and Tier 4 markets that don't have the connectivity, don't have the peering to actually make these AI applications work. So 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 customer. So as the carriers come in, they cross, 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.

And Doug, for us, non-data center experts, when you say those Tier 3, Tier 4 markets, we're really talking about underserved rural markets is just don't really have the access to the data like today.

Correct. Yes. And those markets, let's just say, at Corpus Christi or Lubbock or Amarillo, Texas, in those markets, it doesn't make sense to build a $30 million or $50 million carrier hotel or a data center. What does make sense is to build modular. And when you build modular out and 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 as much network as you want, and take it down as the customers need it.

Okay. Very good. The next question: 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?

Yes, 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 Duos staff, that has a lot of expertise and former folks who have worked at APR, have 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 for 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 is a 2-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, that's going to come not only from the Edge Data Center business as those deployments grow, but also from some of this new infrastructure business that Doug kind of gave 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.

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?

Yes, I take that. So yes, so we're actually hitting on all cylinders. So we have 6 of them on the ground. We have 4 of them actually coming off the factory this month that are going straight to the site. And then we have 5 more coming off the factory at the end of this month and 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 300 kW. 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 a pretty quick turnaround. So, we're lucky with that.

The 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?

We worked really hard on that. And 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 that over 2 years, 3 years, the pressure is so strong inside these pods. So, you're putting 90 tons 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 dust. So, what will happen is those Dell servers or Cisco routers, all that stuff will start getting dust on it, and they're going to 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 the 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 health care. You can't do that in a pod with anybody else. Without having this room, I don't know how you're going to 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.

The 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?

So, I think this is kind of a repeat question. But Doug, maybe we can just talk about the size of the deals, right? Because we're talking, 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.

Sure. Yes. So obviously, our core business is to launch into these Tier 3, Tier 4 markets and to build the infrastructure out. So we obviously partner with the school systems in that area and the health care 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 are 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, a prime example, say somebody needs 5 meg, we can actually build a 5 meg 2 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 we're getting interested in the calls that we're seeing are, hey, can you do 5 meg here? Can you do 5 meg in this town? Can you do, so they're actually starting to disperse because they can deploy this power in these pods in about 120 days. So, we're actually actively looking at an application now for that need.

So this will be the last question. Where are you prioritizing your target markets for Edge Deployments? And what factors guide your regional expansion strategy?

So, really, the proof of concept was the education sector, and we started out in Amarillo, Texas. And 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, the markets, the Tier 3 and Tier 4 markets, they want to have better access to AWS' platform.

And what's happening there is once again, you're creating this peer, 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.

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.

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 e-mail.

We now conclude today's earnings call. You may disconnect. Thank you.