Duos Technologies Group, Inc. Q1 FY2026 earnings call

Strategic Transformation Progress

• The company is executing a strategic transformation to a data center-focused business, with dual-edge AI technology solutions as the primary growth driver, while divesting legacy non-core assets.
• The legacy Rail Technology division divestiture is in progress, with a fairness opinion process ongoing expected to extend into Q2 2026. Divestiture will allow capital redeployment, reduced SG&A, and increased focus on higher-growth AI infrastructure opportunities.
• The New APR Asset Management Agreement is on track to conclude later in 2026, consistent with prior planning, with Duos retaining a 5% equity stake in APR Energy's parent.

Duos Technology Solutions Updates

• The segment was created to reduce procurement costs for Duos' own data center deployments, while generating a new asset-light, high-scalability revenue stream serving enterprise, hyperscaler, and contractor customers.
• The segment's pipeline is significantly larger than current backlog, with strong expected revenue ramp in the second half of 2026; management expects revenue from this segment to fully replace lost revenue from the winding down APR AMA with higher margins.

Duos Edge AI Core Business Updates

• A $65 million capital raise completed in March 2026 strengthened the balance sheet, leaving Duos with $33 million in cash and cash equivalents as of Q1 end, fully capitalized for near-term deployments.
• Under the multi-year GPU as a service agreement with Hydrohost: Duos will deploy 2,304 NVIDIA GPUs, representing $176 million in total contract revenue over 36 months, with ~$50 million projected revenue, over 80% margins, and ~$40 million expected EBITDA. An additional $25 million in external co-location revenue is expected over the contract term. A $15 million down payment has been received, with an additional $3 million deposit pending, and deployment is on track to begin earlier than scheduled. Revenue from this contract will start ramping in H2 2026.
• Duos was awarded a high-power co-location contract for 4.8 megawatts of critical compute capacity for a leading hyperscaler's high-density GPU cluster, marking a key commercial inflection point for the platform.
• Geographic expansion is underway across multiple U.S. regions including Maryland, Iowa, Georgia, and Texas, targeting stranded 5-10 megawatt power capacity in secondary markets to enable faster deployment.
• The company is evaluating new green power partnerships to enable faster deployment of megawatt-scale sites, with updates expected in the near term.

Total consolidated Q1 2026 revenue was $2.7 million, down from $4.9 million in Q1 2025, driven by planned wind-down of legacy businesses. Breakdown by segment: (1) Legacy Rail Technology: In process of divestiture, expected to complete in Q2 2026, no material revenue reported in the quarter as operations are being wound down. (2) Duos Energy / New APR Asset Management Agreement: Reported $1.5 million in revenue, accounting for ~55.6% of total Q1 2026 revenue; revenue is expected to continue declining in coming quarters as the agreement concludes later this year. Duos retains a 5% non-voting equity stake in APR Energy's parent, which contributed $900,000 in 100% gross margin revenue in Q1 2026. (3) Duos Technology Solutions: Reported $562,000 in revenue, accounting for ~20.8% of total Q1 2026 revenue. The segment signed 8 new large data center operator clients in Q1, growing total contracted backlog to $14 million, all expected to be invoiced and recognized in 2026. (4) Duos Edge AI: Reported $532,000 in services and consulting revenue plus $30,000 in hosting revenue, totaling $562,000, accounting for ~20.8% of total Q1 2026 revenue. As of Q1 end, the segment has 10 megawatts of contracted high-power co-location capacity, with an additional 15 megawatts planned for 2026 deployment. (5) Technology Systems: Reported $44,000 in revenue, accounting for ~1.6% of total Q1 2026 revenue.

• Management reconfirms its full-year 2026 guidance that total revenue will exceed $50 million, with a significant majority of revenue expected to be recognized in the second half of 2026.
• GPU as a service is expected to contribute ~$26 million to full-year 2026 revenue, nearly all in H2 2026 as deployment and utilization ramp.
• Duos Technology Solutions is expected to contribute ~$26 million to full-year 2026 revenue from existing backlog, including $2.9 million of 2025 deferred revenue to be recognized in H2 2026.
• Management expects to return to positive adjusted EBITDA in the second half of 2026, as revenue ramps up.
• 25 megawatts of total capacity is targeted for deployment in 2026, with 50 megawatts planned for 2027, all within the U.S. market.
• Total planned CapEx for the next 12 months is ~$60 million: ~$30 million over the next two quarters to meet 2026 deployment targets, with an additional $30 million planned for late 2026 to stay on track for 2027 targets, and the company is fully funded for this plan with existing capital.

• The company is a smaller buyer of data center equipment relative to hyperscalers and large co-location providers, creating procurement cost challenges that the Technology Solutions segment was built to address.
• The transformation away from legacy businesses creates near-term higher operating expenses, including marketing costs to reposition the company to investors and customers, leading to a larger net loss in Q1 2026.
• The rail division divestiture process is ongoing and has extended into the second quarter, with uncertainty around the timing and final valuation of the business.
• Broad AI infrastructure growth has created increasing competition, with more market participants entering the modular small-scale data center space, though management notes competitors serve different market segments.
• Grid power capacity constraints in many markets require the company to pursue alternative power solutions, which adds execution risk to new deployment plans.
• All forward-looking results are subject to general market and economic risks, with actual results potentially differing materially from guidance due to factors beyond management control, as outlined in the company's SEC filings.

Q: Do you have plans to expand internationally after your U.S. market progress?

A: While Duos receives international inquiries, especially from South America, the company's primary focus for 2026 and 2027 is proving its business model in the U.S. It plans to stick to its 25 megawatts 2026 and 50 megawatts 2027 U.S. deployment targets for the foreseeable future.

Q: What is the current hardware deployment status for the Hydrohost GPU as a service contract, and could revenue start earlier than planned?

A: As of one week before the call, Supermicro and NVIDIA had received all required components and were completing rack and stack, cutting three weeks off the original lead time. Deployment is now on track to start July 1 instead of August, putting revenue ramping one month ahead of the original schedule.

Q: Why are hyperscalers and large customers seeking 5-10 megawatt modular edge sites from Duos, rather than the large 100+ megawatt data centers built by major providers?

A: Growing demand for localized AI inference workloads requires compute capacity close to end-users and data sources, rather than centralizing all compute in large distant facilities. Duos can deploy 5-10 megawatt sites in under six months, far faster than traditional large data center projects, which aligns with the urgent need to deploy existing purchased GPU inventory. This 5-20 megawatt inference market segment is rapidly growing, with strong unmet demand that Duos is well-positioned to capture.

Q: What is the competitive landscape for your 5-10 megawatt high-density edge data center business, and how do you differentiate from other modular providers like Armada?

A: Most companies talking about modular small-scale data centers only have prototypes, not actual deployed facilities. Armada focuses on single-customer private deployments, often for government or small enterprise use cases, using shipping container-based designs that do not support high-density GPU workloads. Duos builds multi-customer, high-density modular facilities purpose-built for AI inference and GPU workloads, with a track record of 30+ deployed units over 10 years, which gives it a significant competitive advantage.

Q: What are your plans for funding future growth after current deployments, and do you plan to pursue more equity financing?

A: Management prefers to avoid additional equity dilution and plans to shift to debt financing once the first Hydrohost deployment is operational, which management expects will be achievable given the contracted recurring revenue base. The company is also actively pursuing strategic partnerships with industry players like NVIDIA (which has an incentive to help deploy customer-owned GPU inventory that is currently waiting for capacity) and large existing data center operators looking to build out edge inference hub-and-spoke networks, which could provide capital and growth support.