Duos Technologies Group Q2 Earnings Call Highlights

Key Points

• Duos completed its transition to AI infrastructure and edge data centers after selling its legacy rail business and receiving $50.4 million from the APR asset sale, including a $53.2 million gain.
• Second-quarter continuing-operations revenue rose 30% to $6.18 million, while gross margin improved to 55.8% and adjusted EBITDA turned positive. Cash increased to $112.3 million, leaving the company effectively debt-free.
• Duos expanded its data-center pipeline through agreements with Axe Compute covering 65 megawatts and more than $500 million in expected five-year base payments. Management reaffirmed 2026 revenue above $50 million and outlined preliminary 2027 revenue of at least $160 million.

Duos Technologies Group NASDAQ: DUOT said its second-quarter results reflected the completion of its shift from rail technology toward edge data centers, AI infrastructure and technology solutions, supported by divestitures, new customer agreements and a substantially larger cash balance.

Chief Executive Officer Doug Recker said the company completed the sale of its legacy rail business, Duos Technologies Inc., on Aug. 5. The divested business now operates independently under the DuosTI brand, led by President Javier Acosta. Duos will provide transition services for a period following the closing, but Recker said the transaction completes the company’s repositioning as an AI infrastructure and edge data center operator.

Separately, New APR Energy sold substantially all of its assets during the quarter. Duos held a 5% interest in APR’s parent company and received $50.4 million in cash from the transaction, with another $10 million subject to a 12-month holdback that has been recorded as a receivable. Chief Financial Officer Adrian Goldfarb said the sale generated a $53.2 million gain against a $7.2 million carrying value.

Second-Quarter Results and Balance Sheet

Revenue from continuing operations rose 30% to $6.18 million in the second quarter, compared with $4.77 million a year earlier, excluding the divested rail business. Technology Solutions generated $3.23 million in revenue, becoming the company’s largest revenue line. Related-party services and consulting revenue totaled $2.91 million, including $2.71 million of one-time accelerated recognition of remaining APR deferred revenue.

Goldfarb said future asset management agreement revenue related to APR is expected to be minimal as it winds down through the third quarter, while hosting revenue is only beginning to build.

• Cost of revenue declined 9% year over year to $2.73 million.
• Gross margin increased to $3.45 million, or 55.8% of revenue, from $1.78 million, or 37.3%, a year earlier.
• Operating income was about $50,000, compared with an operating loss of $1.54 million in the prior-year quarter.
• Adjusted EBITDA was positive at approximately $500,000, excluding the investment-sale gain and stock-based compensation.
• Consolidated net income was $47.8 million, compared with a $3.5 million net loss a year earlier, largely reflecting the APR-related investment gain.

The company ended the quarter with $112.3 million in cash, up from $15.5 million at the end of 2025, and stockholders’ equity of $207.4 million. Goldfarb said the cash increase reflected APR sale proceeds, a March public offering and a $55 million registered direct offering completed in June. He described Duos as effectively debt-free, aside from a small insurance financing balance.

Cash provided by operating activities from continuing operations was $11.9 million for the first half of 2026. Long-term deferred revenue totaled $18.8 million, including customer prepayments associated with the company’s GPU program.

Axe Compute Expansion

Duos announced a five-year colocation agreement with Axe Compute Inc. for 10 megawatts of critical IT load capacity at its Columbus, Georgia campus. Recker said the agreement is valued at more than $111 million in contracted revenue over its initial term and is expected to become operational in the fourth quarter.

The companies also announced service orders for an additional 55 megawatts of AI data center capacity across multiple U.S. locations under five-year agreements. Recker clarified during the question-and-answer session that the 55 megawatts are gross capacity and incremental to the original 10-megawatt Columbus agreement.

Duos said the Axe-related agreements represent more than $500 million in expected aggregate base payments during their initial five-year terms. The companies also entered a related agreement contemplating up to $140 million in aggregate cash equity investments by Axe Compute, subject to approvals, financing, design and other conditions. Under the planned structure, Duos and Axe would jointly own the new data centers, with Duos holding 51% and Axe holding 49%.

Recker said the arrangement is intended to provide a non-dilutive funding model for accelerating deployments. He said Duos is evaluating six or seven sites, with two under letters of intent, in Texas, South Carolina, Iowa and Alabama. The company is targeting locations where power is already available at the site, rather than facilities requiring new power-delivery approvals.

Deployment Plans and Market Demand

Duos reaffirmed its goal of deploying approximately 25 megawatts of capacity during 2026 and said it is on track to reach that target. Recker said the company has more than 75 megawatts under contract following the Axe expansion.

The company also cited an opportunity with Zero Latency Company, or OLAC, covering up to 15 sites and 225 cabinets under a 10-year arrangement. Duos continues to advance its Nyrstar deployment, which represents about 2 megawatts of contracted capacity and is expected to generate recurring colocation revenue as it becomes operational.

Recker said Duos is focusing on deployments generally ranging from 1 megawatt to 20 megawatts, particularly in tier-three and tier-four markets with available power and fiber connectivity. He said the company sees demand from neocloud providers as well as enterprise customers whose legacy facilities may not support higher-density AI workloads.

During the call, Recker said Duos acquired its Columbus facility after the quarter ended for $30 million, using $15 million in cash and a $13 million zero-coupon seller note that is to be repaid as incremental power is delivered. He said the company had installed more than 7 megawatts of infrastructure at the facility within roughly 60 days of acquiring the building.

Outlook

Management reconfirmed its expectation that 2026 revenue will exceed $50 million. Goldfarb said the forecast is based on contracted business, customer deposits and scheduled orders, rather than potential future transactions. The company expects its GPU-as-a-service business to contribute about $26 million during the year as deployments and utilization ramp in the second half, while its Technology Solutions backlog is expected to contribute about $25 million.

Duos expects adjusted EBITDA to remain positive in the third and fourth quarters, with fourth-quarter adjusted EBITDA projected at $8 million to $10 million. For the fourth quarter, the company expects recurring infrastructure revenue from GPU-as-a-service, colocation and hosting of approximately $17 million to $18 million, representing an annualized recurring-revenue exit rate exceeding $70 million under multiyear agreements.

For 2027, management outlined an early framework for at least $160 million in revenue, based only on announced and contracted programs. Goldfarb said the company plans to provide formal 2027 guidance with its third-quarter results.

About Duos Technologies Group (NASDAQ:DUOT)

Duos Technologies Group, Inc provides advanced non-intrusive security and inspection solutions utilizing motion-based and artificial intelligence technologies. The company's core offerings include intelligent video analytics, RFID checkpoint systems, and specialized screening devices designed to detect security threats and contraband across transportation, logistics and critical infrastructure environments. Duos integrates proprietary hardware with software to deliver automated inspection and monitoring tools that enhance safety and operational efficiency.

Among its primary products are automated gate-entry systems, railcar inspection portals and portable screening devices that use AI-driven image recognition and sensor fusion to identify objects such as unauthorized materials, pipeline anomalies or vehicle defects.

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