Duos Technologies Group, Inc. Q2 FY2026 earnings call

• Strategic Transformation & Divestitures • Completed the sale of the legacy rail business Duos Technologies, Inc. on August 5, 2026, which became an independent privately held company. This completes the company's strategic repositioning to focus 100% of capital and management resources on edge data centers and AI infrastructure. • Realized $60 million in value from the sale of the company's 5% stake in APR Energy parent company, receiving $50.4 million in cash immediately with $10 million held as a 12-month receivable, generating a $53.2 million gain on a $7.2 million carrying value. • The combination of these two divestitures materially strengthened Duo's cash position and completed the full transition to a data center-focused business.

• Leadership Updates • Added a new senior executive with deep digital infrastructure growth experience to help drive execution across edge data centers and technology solutions. The search for a new CFO with significant public market experience is in its final stages.

• Duo's Technology Solutions • Continued gaining market traction, growing revenue and backlog to $25 million. The business serves enterprise, contractors, data center operators, and AI infrastructure players, generating low-capital revenue while supporting the company's own infrastructure deployments. • Secured strategic master service agreements, proven delivery capability, and strong partner relationships to navigate industry supply constraints and accelerated deployment timelines.

• Duo's Edge AI Infrastructure • Signed an initial 5-year co-location agreement with Axe Compute for 10 megawatts of capacity at the Columbus, Georgia campus, valued at over $111 million in contracted revenue, expected to be operational in Q4 2026. Subsequently announced an expansion adding 55 additional megawatts across multiple U.S. locations, bringing total expected contracted revenue to over $500 million over the 5-year term. • The Axe Compute expansion uses a joint venture structure: Axe Compute will make up to $140 million in aggregate equity investments, with Duo holding 51% and Axe Compute holding 49% of the new projects. This provides a non-dilutive financing model to accelerate data center deployment, with initial operational readiness targeted for late 2026 to early 2027. • Signed an agreement with zero latency provider OLAC for up to 15 sites and 225 cabinets, demonstrating strong market interest across the portfolio. Continued on-schedule deployment progress with NYSTAR for 2 megawatts of contracted high-density AI capacity. • The Hydrohost GPU deployment in Columbus remains a core growth opportunity, with deployment progressing ahead of expectations and customer deposits already received. Revenue recognition will increase as GPU capacity comes online, with significant future expansion opportunities already under discussion. • On track to hit the 2026 target of 25 megawatts of deployed capacity, with a modular, disciplined strategy that only deploys where power, connectivity, and customer demand align for long-term value. Completed the $30 million acquisition of the Columbus, Georgia data center, which will support 2,304 NVIDIA B300 GPUs.

• Financial Performance Highlights • Gross margin increased 94% year-over-year to $3.45 million (55.8% of revenue) in Q2 2026, up from 37.3% in Q2 2025, a structural improvement from the shift to higher-margin technology and infrastructure revenue. Reached positive adjusted EBITDA of $0.5 million in Q2 2026, ahead of plan. Ended the quarter with $112.3 million in cash and is effectively debt-free with a strong balance sheet.

Following the divestiture of the legacy rail business (now classified as discontinued operations), Duo has two core continuing operating segments for Q2 2026:

1. Technology Solutions: Generated $3.23 million in revenue, which represents 52.3% of total continuing operations revenue. This is the company's largest revenue line, growing from zero in Q2 2025, driven by data center deployment demand. The segment's backlog increased to $25 million, with relatively low capital requirements.
2. Related Party Services & Consulting: Generated $2.91 million in revenue, which represents 47.1% of total continuing operations revenue. This figure includes $2.71 million in one-time accelerated recognition of remaining APR Energy deferred revenue; go-forward revenue from this segment will be minimal as it winds down through Q3 2026.

Hosting revenue for the edge AI infrastructure segment is just beginning to build as projects come online. Total revenue from all continuing operations was $6.18 million for Q2 2026, a 30% increase from $4.77 million in Q2 2025 (adjusted to exclude the divested rail business).

• 2026 Full Year Guidance: Management reconfirms prior guidance that total 2026 revenue from continuing operations will exceed $50 million. Of this total, GPU as a service is expected to contribute approximately $26 million, and Technology Solutions is expected to contribute approximately $25 million from the existing backlog.
• 2026 Profitability Guidance: Adjusted EBITDA is expected to remain positive in both Q3 and Q4 2026, with Q4 2026 adjusted EBITDA projected to be between $8 million and $10 million.
• 2026 Exit Run Rate: By the end of Q4 2026, Duo expects to have an annualized recurring revenue exit run rate in excess of $70 million, from contracted multi-year agreements with gross margins above 70%. Recurring infrastructure revenue in Q4 2026 is expected to reach $17 million to $18 million.
• 2027 Guidance Framework: Management's early projection calls for total 2027 revenues of at least $160 million, including a full year of the GPU program, full year of contracted co-location deployments, and continued Technology Solutions growth. This framework only includes already announced and contracted programs, with additional pipeline opportunities expected to be incremental. Formal 2027 guidance will be released with Q3 2026 results. Adjusted EBITDA margins are expected to expand significantly in 2027 as the recurring revenue base scales against a largely fixed cost structure.
• All guidance only includes contracted, deposited, and scheduled projects, and assumes no contribution from unclosed transactions or accelerated GPU energization.

• Construction, commissioning, and performance testing delays could push back the operational launch of new Axe Compute and Hydrohost projects, delaying revenue recognition.
• Increasing competition in the sub-20 megawatt edge AI infrastructure market is expected as market demand grows, potentially pressuring pricing and market share.
• Failure to deploy infrastructure correctly and reliably could damage the company's reputation and customer relationships in the mission-critical AI infrastructure space.
• Site acquisition and power access delays could slow the pace of capacity expansion for new projects, even if sites are currently under letter of intent.
• Actual results could differ materially from forward-looking projections due to regulatory, construction, financing, and market risks, which are detailed in Duo's Form 10-K and other SEC filings.

Q: Is the 55 megawatts from Axe Compute incremental to the original 10 megawatts, are sites secured, and does Axe's $140 million equity investment cover most of the capex for the JV? / A: The 55 megawatts is gross and fully incremental to the original 10 megawatts, bringing total contracted capacity with Axe to 65 megawatts. Most target sites are in Texas, South Carolina, Iowa, and Alabama, are already under letter of intent, and have pre-existing power access ready for immediate deployment, avoiding lengthy utility approval processes. Axe's equity investment covers the vast majority of capex for the initial two deployments, with Duo's share of capex coming in under $30 million per site, well within the company's existing cash capacity.\n\nQ: What are your key competitive advantages, and how has the competitive environment changed? / A: Duo's core niche is 1 to 20 megawatt deployments, where demand is growing rapidly from both AI players and enterprise customers moving away from legacy enterprise data centers. The company holds a key patent for a clean room modular design critical for protecting sensitive GPU clusters deployed in modular environments, and has 9 years of experience deploying modular infrastructure, giving it a first-mover advantage. While new competitors are expected to enter the space, Duo's existing patent and operational experience create significant barriers to entry.\n\nQ: What is the binding constraint on growth beyond existing contracted capacity, and how attractive are Tier 3/Tier 4 markets? / A: Tier 3 and Tier 4 markets are extremely attractive for Duo because they hold large amounts of stranded, low-cost power available for immediate use, with readily available fiber connectivity and latency low enough for most use cases (under 5 milliseconds within 130 miles of major population centers). The company currently has over 100 megawatts of additional pipeline in 5 to 10 megawatt tranches for 2026, but the business is deliberately paced to deploy projects correctly rather than rushing to meet unconfirmed demand. The primary constraint is disciplined execution, not customer demand, power access, or capital, and the company can afford to be selective with high-credit, reputable customers to maintain a diversified customer base.\n\nQ: Is the past period of one-time higher operating costs complete, and will OpEx growth slow moving into 2027? / A: The first half 2026 increase in operating expenses was almost entirely one-time, driven by complex accounting and restructuring costs associated with the APR sale and rail business divestiture. After divestiture, the company reduced headcount from ~100 employees to 25 full-time employees, so SG&A growth will be very slow going forward. All major restructuring is complete, and future cost increases will be tied directly to new specific growth opportunities, supporting expanding margins as revenue scales.\n\nQ: Is the period of limited capital and need for equity dilution behind the company? / A: The non-dilutive JV structure with Axe Compute provides the cash needed to complete the current contracted projects, and the resulting revenue and tangible assets will allow the company to access debt financing for future expansion, eliminating the need for near-term shareholder dilution. The current market demand is extremely strong: any available capacity would be immediately taken by waiting customers, and legacy enterprise data centers cannot support the higher power and cooling requirements for modern AI workloads, opening a large new market segment for Duo's flexible, modular edge infrastructure.