Business Overview and History

Duos Technologies Group, Inc. (NASDAQ:DUOT) is a technology company that specializes in innovative machine vision and artificial intelligence solutions for the transportation and data infrastructure industries. Founded in 1990, the company has consistently demonstrated its ability to adapt and evolve, positioning itself as a trailblazer in its respective markets.

Duos Technologies Group, Inc. was established in 1990 and is headquartered in Jacksonville, Florida. The company’s origins trace back to its focus on developing advanced inspection and monitoring systems for the rail industry. Duos is the inventor of the Railcar Inspection Portal (RIP) and is currently the rail industry leader for machine vision/camera wayside detection systems that incorporate Artificial Intelligence at speeds up to 125 mph. The RIP inspects a train at full speed from the top, sides, and bottom, examining mandated safety inspection points.

Over the years, Duos has expanded its expertise and product offerings, becoming a leading provider of machine vision and AI-powered solutions for a variety of transportation-related applications. The company has successfully deployed its RIP technology with several Class I railroads and one major passenger carrier in North America. In addition to its rail solutions, Duos has developed the Automated Logistics Information System (ALIS), which automates gatehouse operations for trucks entering and exiting large logistics and intermodal facilities. ALIS incorporates various sensors and data points, interconnecting with backend logistics databases to streamline operations and enhance security.

Duos has made significant investments in its delivery and operations capabilities in recent years to match the advanced nature of its technologies. The company has built a team of professionals that have leveraged its core competencies to expand into new markets, driving revenue growth. Duos self-performs all aspects of hardware, software, IT, and Artificial Intelligence development and engineering, maintaining a significant intellectual property portfolio with approximately 53 Artificial Intelligence Use Cases.

In recent years, Duos has further diversified its business, leveraging its extensive experience in edge computing and data processing to establish a new subsidiary, Duos Edge AI. This division focuses on providing adaptive, versatile, and streamlined Edge Data Center (EDC) solutions tailored to meet the evolving needs of various industries, particularly in underserved and remote areas. The company’s EDC offerings are designed to deliver low-latency, high-speed computing capabilities, addressing the growing demand for advanced data processing and improved connectivity.

Duos’ third subsidiary, Duos Energy Corporation, was launched in 2024 to capitalize on the rising demand for power generation solutions to support the growing data center industry. This division is responsible for the management and operation of a fleet of mobile gas turbines with a combined generation capacity of 850 megawatts, which was acquired through a strategic partnership with Fortress Investment Group.

Financial Performance and Ratios

Duos Technologies Group’s financial performance has shown improvement in recent periods, reflecting the company’s ongoing investment in product development and market expansion. For the year ended December 31, 2023, the company reported annual revenue of $7.47 million and a net loss of $11.24 million. The company’s operating cash flow (OCF) for 2023 was -$8.75 million, while free cash flow (FCF) stood at -$9.84 million.

In the most recent quarter (Q3 2024), Duos reported significant year-over-year growth, with revenue increasing by 112% to $3.24 million. The net loss for the quarter narrowed to $1.40 million, while OCF was -$2.26 million and FCF was -$2.93 million. Notably, recurring services and consulting revenue grew to over $1.55 million in Q3 2024, representing an 88% increase from the same period in 2023.

Liquidity

As of September 30, 2024, Duos had a cash balance of $646,110 and over $2.86 million in total cash and expected short-term liquidity. The company’s debt-to-equity ratio stood at 1.02, indicating a moderate level of leverage. Duos’ current ratio was 0.73, and its quick ratio was 0.56, suggesting potential short-term liquidity challenges. To address these challenges, Duos entered into $2.2 million in secured promissory notes in July 2024 to fund the construction of new Edge Data Centers.

Business Segments and Revenue Breakdown

Duos Technologies Group operates in four main product segments:

AI Technologies: This segment incorporates artificial intelligence algorithms to provide important operating information to users of Duos’ systems. For the nine-month period ended September 30, 2024, this segment contributed $536,000 in revenue.

Technical Support: This segment generates revenue from maintenance and support contracts. For the nine-month period ended September 30, 2024, technical support revenue was $3.06 million.

Consulting Services: This segment includes professional services, customer training, and maintenance/support. For the nine-month period ended September 30, 2024, consulting services revenue was $3.60 million.

Overall, Duos’ total revenue for the nine months ended September 30, 2024, was $5.82 million, a slight decrease of 2% compared to the same period in the prior year. This was primarily due to the timing delays in the deployment of the high-speed RIPs, which offset growth in the services and consulting segments.

Recent Developments and Outlook

In 2024, Duos Technologies Group has made significant strides in expanding its business operations and diversifying its revenue streams. The company’s Duos Edge AI subsidiary has secured several contracts to deploy Edge Data Centers in underserved areas, addressing the growing demand for low-latency computing and improved connectivity. Additionally, the company’s Duos Energy Corporation division has entered into a two-year Asset Management Agreement with Fortress Investment Group, overseeing the deployment and operation of a fleet of mobile gas turbines with a combined generation capacity of 850 megawatts.

In the third quarter of 2024, Duos received a $1.4 million contract modification for its two high-speed RIPs for a passenger transit client. The company also generated $505,982 in new services and consulting revenue from power consulting work. However, Duos continues to experience delays in the Amtrak RIP installation due to site preparation issues but remains in discussions for additional portals.

Looking ahead, Duos expects the fourth quarter of 2024 to be a transition period as the various business units prepare for more material operations in 2025. The company anticipates that its quarterly financial results will become more predictable going forward, driven by the growth in its recurring revenue streams and the successful execution of its diversification strategy. Duos expects to become profitable in 2025, supported by the new initiatives described, including the $42 million asset management agreement and the growth in their Edge Data Center and Railcar Inspection Portal businesses.

As of September 30, 2024, Duos reported contracts in backlog and near-term renewals/extensions totaling more than $18.8 million in revenue, of which at least $1.6 million is expected to be recognized in the remainder of 2024.

Risks and Challenges

Duos Technologies Group faces several risks and challenges that investors should consider. The company operates in a highly competitive industry, with larger, well-established players that may have greater resources and market share. Additionally, the company’s reliance on a limited number of large customers could expose it to significant revenue volatility, should these customers experience changes in their operations or procurement strategies.

The company’s ongoing investment in product development and market expansion also presents execution risks, as the successful commercialization of new technologies and the successful integration of acquired assets are critical to the company’s long-term success. Furthermore, Duos Technologies Group’s ability to navigate supply chain disruptions and macroeconomic uncertainties will be crucial in maintaining its operational efficiency and financial resilience.

In the past, Duos faced challenges related to a lack of working capital. However, the company has successfully addressed these issues through underwritten offerings and private placements completed in 2022 and 2023. Notably, Duos raised over 11.5 million from the sale of Series E and F Preferred Stock during 2023, which significantly improved the company’s liquidity position.

Conclusion

Duos Technologies Group, Inc. (NASDAQ:DUOT) has demonstrated its ability to adapt and evolve over the past three decades, transforming itself from a niche rail inspection company to a diversified technology solutions provider serving the transportation and data infrastructure industries. The company’s recent expansion into the Edge Data Center and power generation markets presents promising growth opportunities, as it leverages its expertise in edge computing and data processing.

While the company has faced financial challenges in the past, its recent financial performance and the successful execution of its diversification strategy suggest a more positive outlook for the future. The significant year-over-year revenue growth in Q3 2024 and the increase in recurring services and consulting revenue are encouraging signs of the company’s progress.

Investors should closely monitor Duos Technologies Group’s ability to navigate industry competition, supply chain disruptions, and macroeconomic uncertainties, as these factors will be crucial in determining the company’s long-term success. The company’s focus on expanding its subscription-based offerings and leveraging its expertise in edge data centers to pursue new market opportunities could drive future growth and profitability. As Duos continues to execute its strategy and move towards its goal of profitability in 2025, it remains an interesting prospect for investors interested in the intersection of transportation technology and data infrastructure.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.