Duos Technologies Group, Inc. Common Stock 2026 Q2 Earnings Call

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 will 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 extending our Edge Data Center platform, growing Duos Technology Solutions, and advancing several key strategic initiatives designed to support long-term revenue growth and profitability.

Adrian will provide details on the quarter's financial performance. I would 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 am 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 DuosTI 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 AI 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. 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 value of 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 strengthen 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've 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. 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. 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 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 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 traditional order takers. They need partners who can pivot quickly and navigate the largest boom in the industry has ever seen.

That's exactly our technology solutions team brings to market, solutions. As for Duos Edge AI, the demand environment for AI infrastructure remains exceptionally strong. One of the most significant developments since our last earning call was the signing of a five-year colocation agreement with Axe Compute Inc., a neocloud infrastructure platform to provide 10 megawatts of critical IT load capacity at a 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 cloud customers seeking scalable infrastructure solutions outside traditional tier 1 markets.

As announced earlier today, that relationship has now taken a major step forward. Together with Axe Compute, we announced new service orders adding up to 55 megawatts of AI data center capacity across multiple U.S. locations under a five-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 five-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 projects, subject to required approvals, financing, financial 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, OLAC, covering up to 15 sites and 225 cabinets, which speaks to the level of interest we're seeing across that portfolio. Beyond these markets development efforts, we also continue making progress with Nyrstar. 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 megawatts 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 Nyrstar 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 operational commencement, we believe the project provides another meaningful building block in our path toward establishing 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 Hydra Host. The Hydra Host 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 progress. Revenue recognition is expected to increase as systems become operational and GPU capacity is placed in 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, continue to believe this relationship positions Duos to participate meaningfully in the rapidly expanding AI infrastructure market. Regarding capacity expansion, we continue to execute 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 align to create long-term value.