管理層發言
Good morning. Welcome to Duos Technologies First Quarter 2026 Earnings Conference Call. Joining us for today's call are Duos' CEO, Doug Recker; and CFO, Leah Brown. Following their remarks, we'll open the call for your questions. Then before we conclude today's call, I'll provide the necessary cautions regarding the forward-looking statements made by management during this call. Now I'll turn the call over to Mr. Doug Recker. Sir, please proceed.
Welcome, everyone, and thank you for joining us today. Earlier today, we issued our earnings press release and at the end of last week, we filed our 10-Q for Q1 2026. Copies are available in the Investor Relations section of our website. I encourage all listeners to view press releases and our 10-Q filing to better understand some of the details we'll be discussing during this morning's call. At a high level, our first quarter results reflect the continued execution of our strategic transformation towards a data center-focused tech platform with our Duos Edge AI Technology Solutions division emerging as our primary growth drivers. As expected, results from the quarter reflected our in-progress transition away from the legacy rail operation and the planned wind down of the new APR asset management agreement, which was the primary driver for the revenue in the period. At the end of the same time, we remain on track to exceed our $50 million revenue target for this year, supported by our strategic partnership with Hydra Host and our growing pipeline of AI infrastructure deployments. Before I get into the exciting updates on our Duos Edge AI and Technology Solutions divisions, I'd like to first update you on our rail technology and Duos Energy subsidiaries. Since our last call, we've continued to make progress on the rail division divestiture. The company is currently going through a fairness opinion on the value of the rail division, and this process is expected to extend into the second quarter. As previously discussed, this was a thoughtful decision that will enable us to redeploy capital, reduce SG&A and focus on higher growth opportunities. We will provide additional details as the progress moves forward. Turning to the Duos Energy Corporation. We saw a ramp down with reduced reliance on Duos services this quarter. As a reminder, in December of 2024, Duos entered into an asset management agreement with APR Energy to help find new contracts to engineer, procure, construct and operate fast power plants. This was pivotal for us to make our data center business transition that is currently underway. As we previously discussed, the AMA will conclude later this year, but we will retain a 5% equity stake in the parent of APR Energy. In Q1, the company reported $1.55 million in revenue with a cost of goods sold of approximately $544,000. This was a step down from the previous period, and we expect it to continue to wind down in the coming quarters. Now I'd like to discuss our data center strategy and our newer line of business, Duos Technology Solutions. As we build and deploy data centers at scale, controlling costs and optimizing procurement is critical given the capital-intense nature of this market. As a smaller buyer relative to hyperscalers and large colocation companies, we needed a more efficient way to procure equipment, which led to the creation of Duos Technology Solutions. This division enables us to reduce procurement costs for our own deployments while creating a new asset-light revenue stream, serving enterprise, hyperscalers and contractor customers. I am pleased to report that Duos Technology Solutions experienced traction throughout the first quarter. We successfully signed eight new large data center operators and increased our backlog to approximately $14 million, all of which is expected to ship and be invoiced in 2026. Our pipeline for Technology Solutions is several orders of magnitude greater than the backlog as of today, giving us additional confidence in our outlook, specifically in the revenue ramp for the second half of the year. This new line of business, with low overhead, is highly scalable while also being supported by strong customer commitments. We expect the revenue generated by Technology Solutions to not only replace the revenue from the APR AMA, but also provide better margins. Now I want to shift our discussion to the core of our new data center-focused organization, Duos Edge AI. The demand for edge computing and AI infrastructure continues to grow rapidly, and we believe Duos is well positioned to address this demand through our modular data center platform. Following our recent capital raises, including the $65 million in financing completed in March, we have significantly strengthened our balance sheet and are well capitalized to support near-term deployments and future growth. Our focus for the first half of 2026 is to continue executing our sales strategy to acquire new customers in our markets to fully utilize capacity of each edge data center (EDC). During the quarter, we made significant progress across two key revenue streams: GPU-as-a-Service and high-power colocation. Under our GPU-as-a-Service agreement with Hydra Host, we expect to deploy 2,304 NVIDIA GPUs across our edge data center platform. This contract represents approximately $176 million in total revenue over a 36-month term with total anticipated revenue of roughly $50 million, projected margins exceeding 80% and approximately $40 million in expected EBITDA. Importantly, in addition to the GPU-as-a-Service revenue, this partnership is expected to generate external colocation revenue of approximately $25 million over the term, further enhancing the overall economics of the relationship. We have already received a $15 million down payment with an additional $3 million deposit pending currently. We are actively executing on initial deployments. We continue to expect revenue from this agreement to begin ramping in the second half of the year. Separately, we were awarded a high-power colocation contract to deliver 4.8 megawatts of critical compute capacity to support a leading hyperscaler high-density GPU cluster. Together, these agreements represent a significant commercial inflection point, establishing two complementary high-margin revenue streams and validating our edge data center platform at scale. At the same time, we are also seeing increasing demand for high-density data center capacity, driven by AI and advanced compute workloads with demand now measured in megawatts rather than kilowatts. These higher power capacity EDCs should provide much higher monthly recurring revenue for Duos. Duos currently has 10 megawatts contracted and an additional 15 megawatts planned for deployment in 2026, and we continue to expand our pipeline of edge data center opportunities to support growing demand for our AI training, inference and high-performance computing workloads. Geographically, we're expanding into multiple regions across the country, including Maryland, Iowa, Georgia and Texas as we position the platform to serve both enterprise and hyperscale customers. Within our existing EDCs, we have also begun hosting open houses for the surrounding communities as well as prospective customers to provide an opportunity to explore how edge data centers enable faster connectivity, localized computing power and AI readiness. We've recently announced a few of these community initiatives and expect to host several more over the coming months. Since announcing our recent contracts, we have seen strong inbound interest from hyperscalers, new cloud providers and other large-scale compute customers. Supporting our growing backlog and pipeline, we are currently evaluating new power partnerships that will enable green solutions and faster deployments for our megawatt sites and expect to provide exciting updates in this area in the near future. In closing, we believe Duos is at a pivotal inflection point. We are transitioning to a higher growth, higher-margin business model, building strong visibility through contracted opportunities and pipeline and positioning the company to deliver meaningful revenue and EBITDA growth as we move through 2026. Now I would like to turn it over to our CFO, Leah Brown, who will go over our financials for the first quarter of 2026. Leah?
Thank you, Doug. This has been an encouraging and productive start to 2026 for Duos. The first quarter included several landmark announcements, strategic financing, strong backlog growth, strategic investment and meaningful progress toward building a stronger, more scalable company. I will now walk through our first quarter 2026 financial performance and highlight key operational drivers that shaped our results. For Q1 2026, total consolidated revenue was approximately $2.7 million compared to $4.9 million in the first quarter of 2025. Total revenue for Q1 2026 represents an aggregate of approximately $44,000 of technology systems revenue, $562,000 of Technology Solutions revenue, approximately $532,000 in services and consulting revenue, $1.5 million from related party services and consulting agreement and approximately $30,000 of hosting revenue. The decrease in total revenues was primarily driven by the planned wind down from Duos Energy and the APR asset management agreement that Doug mentioned previously. The company delivered materially stronger gross margin in Q1 2026, generating $1.6 million in gross profit, achieving approximately 59% margin, a significant year-over-year improvement. This was driven by a reduction of cost of goods sold, largely reflecting the impact of the transition of the AMA and the associated decline in related costs. The company also recognized approximately $900,000 of revenue during the first quarter of 2026 and 2025 related to its 5% nonvoting equity interest in the ultimate parent of APR. As this revenue has no associated cost of revenue, it contributed at a 100% gross margin. The company reported net loss of approximately $3.5 million for Q1 2026 compared to a net loss of $2.1 million for Q1 2025. The year-over-year increase was primarily driven by lower revenues resulting from reduced scope of services Duos Energy provided under the AMA with APR as well as higher operating expenses. As we discussed on previous earnings calls, achieving positive adjusted EBITDA in Q3 and Q4 last year were important milestones for the company, reflecting the early benefits of revenue scale and margin improvement. In Q1 2026, adjusted EBITDA was negative $1.5 million. We did not report adjusted EBITDA in the prior year period, but on a comparable basis, this reflects the impact of the items discussed earlier. While we did not achieve positive adjusted EBITDA in the quarter, we expect improved profitability as revenue ramps in the coming quarters. Let's shift to the balance sheet. The company ended Q1 2026 with $33 million in cash and cash equivalents. Our cash increased significantly compared to December 31, 2025, as a result of our $65 million capital raise in March, which strengthened liquidity and enhanced our ability to support operations and fully fund our planned investments as part of our agreement with Hydra Host. As of March 31, 2026, Hydra Host has secured a customer for the company, and this customer provided a deposit of $15 million to the company in May 2026 with an additional $3 million currently pending. Now I'd like to turn to our 2026 outlook. At the end of the first quarter, the company's bookings represented approximately $43.5 million in revenue, all of which is expected to be recognized during the year, including contracted backlog and near-term anticipated awards. In addition, approximately $1.1 million of the contracted Technology Solutions deferred revenue recorded in 2025 will be recorded as revenue in 2026, further supporting the company's performance. Based on these committed contracts and near-term pending orders that are already performing and scheduled to be executed throughout the course of 2026, the company is reconfirming its expectation for total revenue in 2026 to exceed $50 million. Let me briefly walk through how we bridge from approximately $2.7 million of Q1 revenue to our $50 million full year target, which we know is a key focus for our investors. The primary driver is our GPU-as-a-Service business, which we expect to contribute approximately $26 million, largely recognized in the second half of the year as the project comes online and utilization ramps up. In addition, we expect to generate approximately $26 million from our Technology Solutions backlog, which provides a solid base of committed revenue. This includes $2.9 million currently recorded as deferred revenue that will be recognized in the second half of the year. We also remain on track to recognize $15 million of bookings as revenue in 2026 supported by an additional $25 million in backlog. We also anticipate the balance of guidance to be recognized due to incremental contributions from colocation and infrastructure services, driven by customer expansions, new hosting deployments and continued capacity build-out, along with new customer wins we are actively pursuing. Together, these visible drivers give us confidence in reaching our full year target. To reiterate, due to the timing of revenue recognition, a significant portion of revenue is expected to be recognized in the second half of the year, during which time we also expect to return to positive adjusted EBITDA. Doug, I'll now turn it back to you for final comments.
Thank you, Leah. Our first quarter of 2026 reflects continued momentum as we execute on our AI infrastructure strategy and expand our edge data center footprint. The industry recognition we've received this year underscores the strength of our positioning and validates the path we're on. We believe our strategy is aligned with several powerful industry trends, including the rapid growth of AI-driven workloads, increasing demand for high-density and energy-efficient infrastructure, the shift towards secondary markets with available power and a broader move toward modular, faster deployed data center solutions. At the same time, evolving power, cooling and sustainability requirements are all reshaping the competitive landscape, further reinforcing the importance of the scalable, cost-efficient and speed-to-market solution. We are entering the remainder of 2026 with focus, discipline and a growing pipeline of opportunities, and we believe we are well positioned to capture the market opportunity. And with that, I will open up to questions, everyone. Thank you.
分析師問答
Our first question today is coming from Rafay Khalid from Ascendiant Capital Markets. In particular, modular, faster-deployed data center solutions. At the same time, evolving power, cooling and sustainability requirements are all reshaping the competitive landscape, further reinforcing the importance of the scalable, cost-efficient and speed-to-market solution. We are entering the remainder of 2026 with focus, discipline and a growing pipeline of opportunities, and we believe we are well positioned to capture the market opportunity. And with that, I will open up to questions, everyone. Thank you.
This is Rafay for Edward Woo. With your progress in the U.S. data center market, do you have any plans to expand internationally?
Right now, good question because we are getting a lot of inquiries internationally, especially South America. I was actually in London last week; a lot of interest. But right now, our primary focus is to keep proving the model out here in the U.S. and probably stick with doing our 25 megawatts this year and our 50 next year in the U.S.
Great. And one more question. With such strong demand in the U.S., have you seen new competitors enter the market or any change in the competitive landscape?
Actually, there has been some movement. Obviously, Armada is in the business, but it's a different approach. They're more privatized with Microsoft, but you're starting to see the need for inference. You're starting to see the need to compute more locally and the power, obviously, is an issue. So you're starting to see a lot of movement going the modular way and going after that 5 to 10-megawatt range, so you can deploy quicker.
Your next question is coming from Scott Buck from Titan Partners.
Doug, on the Hydra Host GPU-as-a-Service agreement, can you provide the status of what hardware deployment and site readiness look like? Trying to understand whether we start to see some revenue in the third quarter versus even later in the year.
Yes, absolutely. So as of Thursday of last week, Super Micro and NVIDIA have received everything. They're doing the rack and stack at Super Micro. So the cabinets will be fully utilized and shipped on site. So actually, that brings us about three weeks off of our lead time. So fingers crossed, we're looking at that for it to start building instead of August, July 1. So everything is pointing in that direction. So we should be a month ahead of schedule. That would be a $4.4 million in revenue starting.
Great. Great. Could we potentially see this partnership expand to other locations?
Yes. What we see with the Hydra Host partnership going forward is, obviously, on this first model, we deploy GPU-as-a-Service and we actually bought the GPU. That's not our model going forward, but they do have tons of customers, actually over 12 customers that are interested in 5 or 10 meg that other folks have bought the GPU that they need to deploy. So our partnership with Hydra Host will keep growing, and it will grow on the colocation side.
Great. I appreciate that. And then last one for me. You scaled up some costs during the quarter. Do we expect that to continue through the remainder of '26? Or does the current kind of underlying cost infrastructure support the anticipated growth through the end of the year?
The cost of our infrastructure, are you referring to like our $6.5 million per meg...?
Sorry, Doug, you took up some sales and marketing costs, I think, in the quarter, and I think maybe a little bit of G&A. So I'm just curious whether you need to continue to add to OpEx to support the top line.
Yes. So let me talk about that real quick. So obviously, all the investors on the call today realize that we are moving the rail business out. So the challenge has been separating the two. A lot of folks look at us as a rail business and then they dig in and they see what we're doing and then they're extremely excited and happy. So what we're doing is we put a lot of capital in the very beginning of the year and we will do that going into the second quarter to really distance and separate the two businesses. So there's been a lot of marketing expense for that. And obviously, Gateway, we've hired, who is doing an excellent job for us, and we can already see the calls coming in correctly and the investors having the right pitch and having the right expectation of what we're doing. So it will fall off around July, August timeframe because we're making great progress. So I think we'll slim that down, but that definitely was a need that we had to do.
Our next question is coming from Allen Klee from Maxim Group.
How do you think about the CapEx spend over the next 12 months?
Yes. So the CapEx spend over the next 12 months, we're looking at deploying our first another 5-megawatt site and roughly, we're at $6.5 million per megawatt. So roughly $30 million is what we're anticipating in the next two quarters to deploy to meet our goal. And then we'll probably deploy another $30 million towards the end of the year to stay on track. We will obviously procure more product for next year to make sure we hit our number for next year. But we are on track. We're well funded to hit our number of the 25-megawatt this year, and we can do that with the funding that we have.
Yes, that's clearly a competitive advantage. And then strategically, it looks like your contract that comes on later this year, it's a 3-year contract. How do you think about what you do with the GPUs after that contract is over? Or do you think there's an option that they could get renewed?
Yes. There's two options there that we're actually looking at. One, the market is saying, and it can change, but the market is saying that those GPUs are going to be worth $50 million to $58 million in that range after the contract is finished. So we have two options. One, we can turn around and sell those GPUs and go back to a straight colo play and then we're out of the GPU business, or we can actually go back to that customer, which is common from what we understand. We go back to that customer, and we're not getting 100% of the revenue that we did on the first term, but probably anywhere from 40% to 60% of that normal revenue. So we'll look at both applications. It just depends. If we want the capital to expand, we'll probably sell those GPUs so we can use that capital to put back into infrastructure.
That's helpful. And you did mention you also have colo opportunities and with the Hydra partnership, it started out with you buying the GPUs. But going forward, you could be getting customers that already have GPUs to deploy. In those type of situations, what would your responsibilities be?
Sure. We actually, when we build a 5-megawatt site, a modular 5-megawatt site, say, in Iowa, our responsibility is to bring power, cooling and connectivity. So we are basically a colo just like a QTS or an Equinix, anybody the big brick-and-mortars; we're just very small, and we provide all the services. They bring their own gear, they bring rack and stack. They bring the infrastructure as far as the compute. We provide the infrastructure as far as the power, cooling and the reliability of the 99.999, the backup power, the generators. That's our core business.
Okay. And then for those opportunities, do you view them as, I guess, signing on to longer-term leases with potential customers? Is that the way to think of it?
Correct. Those are typically five- to ten-year terms. So obviously, we like those terms a lot better.
Okay. Great. Maybe one other question. Just since I'm a little newer to the story, but for Hydra Host, could you go through a little bit of what Hydra Host is bringing to the table, what your expertise is?
Yes, absolutely. So Hydra Host is basically a GPU-as-a-Service company. They do not own the GPU. Their specialty is selling and supporting the GPU. So basically, they have the hyperscalers as a customer. They basically go to companies like myself or investors or data center operators that want that GPU revenue. So they'll go and buy the GPU. The customer owns the GPU. Hydra Host just manages the GPU, the install, they manage the sales. So basically, they bring you revenue and they support the GPU. You own the—you take the hit on buying all the GPU, but in return, you get the revenue, and it's a revenue share. They get a small portion of the revenue. So it's for people that aren't in the GPU business that want to be in the GPU revenue business, basically.
Makes sense. And then in terms of what you said your responsibilities are with colo with power and interconnect and all that. Explain also who you're partnered with to do those things and what their background is?
Sure. So basically, our equipment is, obviously, Schneider Electric. We use a lot of Schneider Electric equipment. We use Vertiv. And then in-house, our team in-house, we have roughly 22 folks that do monitoring with our NOCs. We have two NOCs. We have one in Jacksonville and one in Amarillo, Texas. Those NOCs monitor the pods 24 hours a day. So that's break-fix. If an AC unit goes down, we dispatch within two hours. Everything that's built with our pods is just like a Tier 3 data center. It's what's called N+1. So everything has a redundancy factor to it. So you have time to fix it. If something does go down, it's not hurting the business—you're still delivering the 99.999. You have time to fix it. That's why we have dual generators. Everything you see is what we call an A and B feed, and we maintain all that. Now we do subcontract out, obviously, to contractors that are in those markets, but we control the dispatch, we control the contracts, we control all the servicing.
Right. And as you go forward and are looking at total opportunities or building out, how are you strategically thinking about finding power opportunities?
So when we look for power, we're a different breed. We're not going into a community looking at 100 megawatt. We're going to where power is what we call stranded. So when they build a substation in, say, a city in Iowa, that substation is built to 20 megawatt because the community is expected to grow; there is actually extra power there. Our team goes out and finds where there's 5 to 10 megawatts of stranded power and then we contract it and move quickly. A lot of times on our two sites that we have, they were old bit-mining sites. So the power is actually there. They thought they would use a lot of power, they never did. So there's 10 megawatts available at the site. What we do is we do a lease with the actual landowner, and we'll take that over for 20 years. The landowner makes money on the power as well. It's to their benefit to bring somebody like us who actually is going to use the 5 to 10 megawatt rather than a bit miner who goes up and down month to month. They want a consistent load. They want to make money off of power, so they like our model.
Next question today is coming from Justin Tapper from Shay Capital.
Doug, so a question for you: the 10 megawatts on the colocation business. So the 10 you've signed, you've guided to 25 this year, so you'll do another 15. And then next year, I think you said 40. Maybe can you just talk about the demand out there? What type of customers want this? Do the same customers that would want the 100-megawatt sites also want something like a 5 or 10 megawatt from you? Maybe you could help us bridge the gap in demand there.
Absolutely. Great question. Thanks, Justin. So yes, what we're looking at in markets right now—let's back up. When we deployed the first one with Hydra Host, we were starting to get tons of calls for 5 to 10 meg. I've been in this business 30 years. I'm thinking why all of a sudden somebody wants 5 or 10 meg when everybody else was looking at gigawatt and 100 meg. It's the power they need. So what's going on is that the 5 to 10 to even 20 meg sector is going to be the hot new sector. That is for training or for inference models. So what's happening is they need to deploy their GPU, they need to deploy it quickly. Everybody knows that people are sitting on GPU. They've bought them, they've invested. Now they need to burn them. To actually get 5 to 10 meg up quickly, we can do that under six months. You can't do that in the other models that people are deploying. So the Microsofts, the Googles of the world, all of them are getting into inference, and they know they need to capture these pockets to do their inferencing. So the 5 to 10 meg range, I can tell you right now, I look on my wall right here, I have 21 neoclouds. If I had 5 or 10 meg, they would take it. So the need is there. They're trying to build their networks out now for inferencing. It's finally there. People have talked about it for a while. Now they're doing it. You can see press releases from Google, how they're looking at doing 20 sites right now, the same thing. So it's time and they can deploy quicker. Speed is of the essence right now.
Got it. Great. And then just a follow-up for me, just on the balance sheet. So the $33 million in cash, I think Leah mentioned the $15 million you received prepayment with another $3 million on the way. So if we assume that was in May, then that's additional cash to the $33 million you filed as of March 31?
Correct.
And then there's on the FTC website over the weekend, there's a filing that Elon Musk purchased APR Energy. One, can you confirm, is that the APR Energy you have the 5% stake in? And if there are any details you can provide us, that would be great.
Yes. I'm not at liberty to say that today, but it is the same company. I can't discuss that today. Hopefully, we'll have some news from them shortly.
Next question is coming from Nico Sacchetti from RBC.
Doug, can you hear me this time?
Yes, sir.
That last question was my first question. I read about it. There's no details released, but it looks like that will capitalize for you. Whatever the details are, if this goes through, your 5% of whatever the number is, is going to come into Duos, correct?
Yes, sir.
Like if the sale takes place, is that going to be taxed? Is the number that we just do 5% of whatever the number is, the number that's going to show up on your balance sheet? Do you have any carry forward? What will that look like?
So just looking at the funds that we would receive, the agreement has a waterfall effect. So it's not a straight calculation just doing a 5% on the transaction.
Sure. I just meant from a tax standpoint. Let's just say he buys it for $100 million. I understand we don't know exactly what the 5% is, but the 5%, is it going to be taxed as a long-term capital gain where you're going to net out an amount of it? That's my question—what would the tax look like? Would it be a gross or a net number?
So I would say at a high level, we do understand that that is a capital gain, but we don't want to divulge any definite calculation around that transaction at this time.
But I think I can answer your question a little bit better, Nico. With this movement of the rail business that we're doing, I think we'll have a substantial amount of NOLs. So I think we'll be in good shape, but we'll report to you as soon as we know.
Sorry, a substantial amount of what I just didn't catch that.
With the movement of the rail.
You said a substantial amount of what?
Well, NOLs. I mean—we've lost a lot of money in that division.
I mean, behind the scenes, I'm sure you're excited, right, because this is getting the company into the actual company that you want moving forward, correct? Focused on what you want to be doing on the data center.
That's exactly correct. If you look at our business, I came into this role and I brought this product to this business for our shareholders. It's the best thing going in the market right now. We just need to separate and focus. For example, we burned through $900,000 on that division. We need to exercise that, and we're doing that. We're almost at the finish line with that. So we're excited about that. We're excited about a bunch of stuff this week. So we're extremely excited about where the company is going. This is another arrow in our quiver.
That rolls into my next question. Usually, you're really fired up on these calls, and it seems like it's a little more dampened this call, and that's with the $2.7 million of revenue for the quarter. Obviously, that's not what I think anybody is looking to own the company for is a number like that. So I'm curious, do you think that this is like the pivot quarter or quarters? Is this something that we should expect given the pivot, that the revenue isn't recognized yet? Should we not view the $2.7 million as concerning because you've booked business that's not yet recognized?
Prime example, if I could have shipped all that stuff because that business—you have to ship it to recognize the revenue—I could have booked $14 million this quarter. But I made it clear on the last earnings call that we're going to see this revenue start kicking at the end of second, third and fourth quarters. That's always been our model. Our model right now is keep going, keep doing what we're doing, get these other sites up because once I have that Iowa site, that's another 5 megawatt at roughly $2 million a megawatt, and then you really start seeing this kick. What we're doing is exactly what I wanted the team to do: build these, deploy them, stay focused and keep your head down. The infrastructure division keeps running. I apologize if I'm not overly excited, but we are working 24/7, and it is good stuff. We are extremely focused.
I just want to ask the question. You mentioned Iowa. Where in Iowa is that work happening?
The name of it is Muscatine, Iowa. I'll put it out there. We have a press release coming in the next day or two. It's right outside of Illinois, so we still get low latency down to the markets in Illinois, which is important. Our hyperscale customer wants that location, and they want the one in Texas as well. The one in Texas is right outside of Amarillo. So we're partnering now with somebody that is going to be a great partner of ours moving forward.
It's not a major metro area in Iowa, correct?
No, but you're only 20 miles out of a major market area. That's where the power was stranded. I could put 10 megawatts there today. The transmission is available.
Okay. I think I have two more questions. So around backlog and revenue—the $43.5 million and the $14 million tech solutions backlog—are those numbers just for 2026? And is the $15 million prepayment included in the reported booked backlog?
The $15 million prepayment, and there's an additional $3 million pending, will be recognized over the life of the contract. So you won't see $18 million being booked immediately. It will be recognized over the three-year customer contract. That $15 million prepayment is included in our reported backlog, but it will be recognized over the life of the contract.
So the $43.5 million in backlog is inclusive of the $15 million prepayment?
Yes, the deposit is included in the reported backlog, but the revenue recognition happens over the life of the contract.
Okay. That helps. And can you confirm that the $43.5 million and the $14 million are booked business for 2026?
Yes, absolutely. Those are for this year.
One more: competition. You mentioned Armada and others. Are they really competing in the same multi-customer, high-density space, or are they focused on more privatized modular solutions? Is the clean-room approach you have a meaningful differentiator?
Yes, it's real—it's a totally different application that we're doing. They're doing more of a shipping-container approach for single customers and government work. They are not building high-density, multi-customer pods. There are a lot of renderings and prototypes in the market, but very few have done high-density multi-customer deployments at scale. We have; I've done this for many years and we've put numerous pods on the ground. Our clean-room approach and deployment quality is a differentiator. Two main hyperscalers recently toured our Corpus Christi facility and signed off on it. That's how we're winning the market: we've actually executed.
Got it. You're positive that the increased interest in modular solutions is overall beneficial to you because it brings hype to the industry and validates the model.
Yes. One, it brings hype to the industry. Two, I'll go up against any of them—if customers can tour other pods and ours, they see the difference. We haven't lost yet when customers compare.
Our next question is coming from Richard Jackson from Strategic Assets.
That last conversation was extremely helpful. Most of my questions were covered, but I have two more, one short, one long. You said that when the client owns the NVIDIA chips, your responsibility is the maintenance, the power and the connection. I'm assuming that means it's your financial responsibility to connect these new centers with fiber.
Yes. So the fiber carriers come. When we find a site, we make sure it's rich in fiber around there—traditionally near long-haul fiber or highways where fiber runs. Then the carrier brings it in because once the customer says they're there, the carriers come since they use so much bandwidth. They need multiple paths. So we don't own the long-haul fiber; the carrier does and sells directly to the customer. But we do strategically place sites where fiber access is strong so carrier costs are reasonable.
Okay. That's helpful. By the way, I was at Corpus Christi when it was announced and that really helped me crystallize going on here. The two things I found most enlightening were: one, you don't use water—it's a pure air cooling system, but the way Bill structures the stacks explains that air can do what it typically can't in other centers; and two, the marginal costs are low because the center pretty much runs itself. Help me understand how you get away with that and still provide high availability.
That's right—cold aisle containment. Our design uses containment to enable effective air cooling at higher densities. That approach, redundant systems and our NOC monitoring allow us to maintain high availability while keeping operating costs lower.
Let me throw out three assumptions; tell me if I'm off. One, it costs somewhere between $1 million to $1.4 million to build these 300 kW centers, correct?
No. Per megawatt, it's about $6.5 million. The $1.4 million are for the 300 kW systems.
Okay. And you're trying to lease these out and it doesn't seem too difficult to do it within a reasonable amount of time, at a lease rate that's in the ballpark of 30% to 50% of that construction cost. Is that about right?
Yes, it's a little under $2 million per megawatt in revenue.
Okay. And that equipment looks pretty sturdy—how long do you think those things are good for?
Everything—generators and major infrastructure—lasts 20 years. Batteries in the UPS have an 8- to 10-year life and would be swapped out; a battery replacement infusion might be on the order of $80,000 on the high side.
On the revenues you're posting, are these one-time payments to build centers or monthly lease revenues, or a mix?
Our revenue primarily comes from recurring monthly lease charges. There is typically a one-time install charge to move a customer in, but the long-term revenue is recurring and power-based—how much power they use drives revenue.
The revenue you're targeting at the end of the year—how much of that is recurring year over year?
The recurring revenue will be through the life of the contracts. GPU-as-a-Service is a three-year contract; most of our colocation contracts are anywhere from five to seven years. The infrastructure division that sells equipment has non-recurring revenue.
I love that you said you're hoping to not go to equity anymore to finance this. In your mind, when do you think monthly free cash flow self-finances this growth—two years out, four years out?
This is a very CapEx-intensive business. Our model is to use debt financing as we scale. After we get more of these on the ground and demonstrate cash flow, we should be able to access debt financing routinely. That's how we plan to fund ongoing deployments rather than recurring equity raises.
So within a year or two, you're generating enough cash flow where you're making a margin of at least 15% and can finance under 10% with debt?
With the model and customers we're bringing on, that shouldn't be an issue. We're aiming for that trajectory.
Our next question is coming from Nathan Frankovitz from Cantor Fitzgerald.
I think you touched on this a bit earlier, but if you could just add a bit more color on the success of the high-power 1 to 2.5 megawatt EDCs. Why would customers choose these versus the 100-megawatt-plus mega data centers? What kind of companies would want these and what’s the end use?
Sure. The big facilities are typically for large-scale training. Now with inference, you have to be where the data is—the eyeballs are. These aren't training centers; these are inference centers, and they need to be closer to end users and data sources. That's why the Googles of the world and others are deploying inference sites. Local markets—hospitals, governments, gaming and enterprises—need compute localized. The equipment density has grown; cabinets that were 10 kW are now 100 kW. You can't put that in a normal data center, so you need specialized builds. We can deploy rapidly and serve that inference market for customers who need high-density compute close to their users.
That's helpful. And then can you touch on EBITDA margins when scaled—consolidated and colocation-level?
Our consolidated EBITDA margin for the full year target is about 17% and adjusted EBITDA about 27% full year consolidated. For high-powered colocation, EBITDA margins can be around 80%, and GPU-as-a-Service is in a similar high-margin range.
Next question is coming from Caroline Gangi.
Most of my questions were answered. Congratulations on the quarter. It sounds like you're going from 25 to 40 megawatts this year to the next year. You mentioned you could sell significantly more systems if you had capital and that you would hit the debt market. Do you think you could find a strategic investor instead of raising money? And when do you think you'll get equity coverage that clears up the story?
On coverage, I think we'll see something soon. People are starting to see our deployments and revenue come in. Once the Hydra Host deal hits in the next 30 to 40 business days, that will drive more interest. We've been talking with analysts who have done deep dives and are helping us tell the story, so I would predict coverage will increase in the near term. On a strategic investor, absolutely. We want to get in front of NVIDIA or OEMs to backstop us, and also large data center investors—Blackstone, DigitalBridge and others—are potential strategic partners. They may view our sites as hub-and-spoke complementary to their large facilities. We see partnerships like this as logical and attractive.
Great. I'm looking forward to that coverage so the market can understand it better.
Me too. There's only so many calls I can do a day and I still have to sell. Thank you for your question.
We reached the end of our question-and-answer session. I'd like to turn the floor back over to Mr. Recker for any further or closing comments.
Well, I want to thank everybody. I hope you got a good vision of where we're going. We are running at full speed and I think you should be proud of us. We'll keep going, and we're excited to see some good announcements this week as well. I look forward to talking to each one of you. Please call me any time with questions. I'm here all the time. Thank you so much for your support. We look forward to talking to you soon. Thank you so much.
Thank you. Before we conclude today's call, I'd like to provide Duos' safe harbor statement that includes important cautions regarding forward-looking statements made during this call. This earnings call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking terminologies such as believes, expects, may, will, should, anticipates, plans and their opposites or similar expressions are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties and risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based and could cause Duos Technologies Group Inc.'s actual results to differ materially from those anticipated by the forward-looking statements. These risks and uncertainties include, but are not limited to, those described in Item 1A in Duos' annual report on Form 10-K, which is expressly incorporated herein by reference and other factors as may periodically be described in Duos' filings with the SEC. Thank you for joining us today for Duos Technologies Group's First Quarter 2026 Earnings Call. You may now disconnect.
Thank you.