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Good afternoon, and welcome to Duos Technologies' Q2 2026 earnings conference call. Joining us for today's call are Duos' CEO, Doug Recker, and CFO, Adrian Goldfarb. Following their remarks, we will open the call to your questions. Then, before we conclude today's call, I will provide the necessary cautions regarding the forward-looking statements made by management during this call. Now, I would like to turn the call over to Mr. Recker. Sir, please go ahead.
Welcome, everyone, and thank you for joining us today. Earlier today, we issued our earnings press release, and we will file our 10-Q for Q2 2026 by Wednesday, August 19, 2026. Copies will be available in the investor relations section of our website. I encourage all listeners to view the press release and our 10-Q filing to better understand some of the details we will be discussing during this afternoon's call. At a high level, Q2 represented another important step in our transformation into a data center and AI infrastructure company. Throughout the quarter, we continued executing on our strategy of extending our Edge Data Center platform, growing Duos Technology Solutions, and advancing several key strategic initiatives designed to support long-term revenue growth and profitability. Adrian will provide details on the quarter's financial performance. I would like to spend a few minutes discussing the key operational developments and strategic progress we made during the quarter.
Beginning with the rail business, I am pleased to report that we have successfully completed the sale of Duos Technologies, Inc. on August 5. Post-transaction, Duos Technologies, Inc. has become an independent, privately held company operating under the DuosTI brand and led by Javier Acosta as President. This transaction represents the completion of the strategic repositioning initiative we announced earlier this year. By completing this divestiture, we are now able to dedicate our capital, management, resources, and operating focus entirely towards scaling Duos Edge AI and Duos Technology Solutions. We believe this streamlined structure will allow us to accelerate execution, improve organizational focus, and better align the company with the opportunities we see across the AI infrastructure market. While we will provide certain transition services for a period following the closing, investors should view this transaction as completion of our transition from a rail technology company into a focused AI infrastructure and Edge Data Center platform company.
Going forward, our attention is centered on executing our deployment strategy, expanding customer relationships, and converting our growing backlog and pipeline into long-term recurring revenue streams. Separately, New APR Energy sold substantially all of its assets during the quarter. As a reminder, we held a five percent stake in the APR parent company and the sale valued our interest at approximately $60 million. We received $50.4 million in cash, with the remaining $10 million subject to a 12-month holdback that is recorded as a receivable on our balance sheet. Combined with the rail divestiture, these transactions essentially complete our full transition to a data center operation, and they materially strengthen our cash position to execute against the opportunity ahead. Looking beyond 2026, we believe the strength of this balance sheet and the focus that comes from operating as a pure-play AI infrastructure company positions us to keep building momentum into 2027 and beyond.
Alongside these strategic and financial steps, we've also continued to strengthen our leadership team to support the next phase of our growth. I am pleased to share that we've recently welcomed Dipan Patel as Chief Operating Officer. Dipan brings years of experience driving growth in the digital infrastructure business, including with SBA and more recently, Telstra InfraCo, and he will help drive execution across our Edge Data Centers and technology solutions platforms. We are also in the final stages of our search for a new CFO with significant public market experience. We look forward to sharing more details as that process concludes. We believe this addition further strengthens our ability to execute against the growth opportunities ahead. With those updates addressed, I'd now like to turn to our core business growth opportunities, Duos Technology Solutions and Duos Edge AI. Now get your popcorn ready because it's about to get really exciting.
Let's start with the technology solutions. This business continues gaining traction and remains an important component of our growth strategy. During the quarter, revenues totaled approximately $3.23 million, driven primarily by continued growth in the data center deployments and the trust that these operators have in our ability to secure and deliver critical equipment they need to keep their projects on time. We also increased our backlog to $25 million, demonstrating the continued demand for our services from enterprise, contractors, data center operators, and AI infrastructure players. The opportunity remains significant because this business allows us to generate revenue with relatively low capital requirements while also supporting our own infrastructure deployments. We remain encouraged by the opportunities we're seeing in the market today. Our growth continues to be driven by the strategic relationships we've built in a relatively short period of time.
We're focused on delivering solutions in market-facing unprecedented timing demands and supply constraints. We've secured strategic MSA contracts, proven our ability to deliver, and continue to gain traction with our manufacturing and vendor partners. Today, data center operators, contractors, and hyperscalers need more traditional order takers. They need partners who can pivot quickly and navigate the largest boom in the industry has ever seen. That's exactly what our technology solutions team brings to market. As for Duos Edge AI, the demand environment for AI infrastructure remains exceptionally strong. One of the most significant developments since our last earnings call was the signing of a five-year colocation agreement with Axe Compute Inc., a neocloud infrastructure platform, to provide 10 megawatts of critical IT load capacity at a Columbus, Georgia campus. This agreement is valued at more than $111 million in contracted revenue over the initial term and is expected to become operational during Q4 of 2026.
We believe this agreement is an important validation of our strategy to develop owned high-density AI infrastructure in attractive markets where power availability, speed of deployment, and operational flexibility are critical to customers. It also demonstrates the increasing demand we are seeing for large-scale AI cloud customers seeking scalable infrastructure solutions outside traditional tier 1 markets. As announced earlier today, that relationship has now taken a major step forward. Together with Axe Compute, we announced new service orders adding up to 55 megawatts of AI data center capacity across multiple U.S. locations under a five-year agreement, an expansion that builds directly on the 10-megawatt deployment we are planning to deliver at our Georgia facility. The agreements represent an expected $500 million-plus in aggregate base payments over their initial five-year term. As part of the expansions, the parties have entered into a related agreement contemplating aggregate cash equity investments by Axe Compute of up to $140 million in the projects, subject to required approvals, financing, financial technical design, and other conditions.
Axe Compute and Duos will jointly own the new data centers, with Duos holding 51% and Axe Compute holding 49%. For Duos, this structure provides a non-dilutive financing model that allows us to launch more data centers faster. Initial project readiness is targeted to begin in late 2026 and continue in early 2027, subject to construction, commissioning, and performance testing. That demand is evident across our pipeline and customer engagement activity. During the quarter, we hosted an open house in several markets, including Lubbock, Dumas, Hereford, and Abilene, providing prospective customers, community leaders, and strategic partners the opportunity to see our deployments firsthand. For example, we recently announced an opportunity with zero latency company OLAC, covering up to 15 sites and 225 cabinets, which speaks to the level of interest we're seeing across that portfolio. Beyond these market development efforts, we also continue making progress with Nyrstar.
This quarter, we continue to expect deployment activities to progress in line with our planned mutual deployment schedule. As a reminder, this deal represents approximately two megawatts of contracted capacity and serves as another important validation of our Edge Data Center platform and our ability to support customers with high-density AI compute requirements. Importantly, the Nyrstar agreement is expected to contribute recurring colocation revenue as capacity comes online and customer utilization ramps. While revenue recognition will be dependent on final deployment and timing of operational commencement, we believe the project provides another meaningful building block in our path toward establishing a larger portfolio of recurring infrastructure revenue. Put together with our Columbus announcement and the Axe Compute expansion, these agreements validate our Edge Data Center strategy and support our confidence in future growth.
Now, turning to Hydra Host. The Hydra Host deployment remains one of the most significant opportunities in the company's history and continues to serve as a cornerstone of our growth strategy. During the quarter, we continued making progress on deployment activities and customer onboarding. We visited our Columbus facility last week, hosted by our customer. They were very impressed with our quality and speed of deployment and the progress we've been able to make in just a few weeks. We remain focused on bringing additional capacity online and supporting customer utilization as deployment progresses. Revenue recognition is expected to increase as systems become operational and GPU capacity is placed in service. From a financial standpoint, we continue to benefit from the strong contractual foundation of the agreement, including customer deposits already received and additional funding milestones expected to be completed pursuant to the contract terms.
Just as importantly, we believe this relationship provides meaningful expansion opportunities beyond the initial deployment. The growing demand for AI training, inference, and high-performance computing workloads continues to create opportunities for additional capacity, and we remain engaged in discussions regarding future expansion scenarios. Overall, we are encouraged by the progress to date and continue to believe this relationship positions Duos to participate meaningfully in the rapidly expanding AI infrastructure market. Regarding capacity expansion, we continue to execute our nationwide deployment strategy. Our goal for 2026 remains approximately 25 megawatts, and we are 100% on plan to achieve that milestone. We also continue to evaluate opportunities to accelerate deployments where customer demand and power availability support attractive economics. As we've discussed previously, our strategy is not simply to add capacity, but to deploy capacity in locations where power, connectivity, and customer demand align to create long-term value.
The demand environment remains highly favorable, and we believe our modular approach provides us with the flexibility to scale efficiently while maintaining a disciplined approach to capital deployment. As a result, we remain confident in our ability to continue expanding our edge data center footprint in support of both existing customer commitments and future opportunities. We believe the trends we are seeing continue to support our business model and long-term growth opportunities. As we look beyond this year, we expect the combination of contracted backlog and expanding pipeline and additional capacity coming online to continue driving growth into 2027, and we will remain focused on translating that visibility into durable long-term shareholder value. Now I'd like to turn it over to our CFO, Adrian Goldfarb, who will go over our financials for Q2 of 2026. Adrian?
Thank you, Doug. This was the most consequential quarter in the company's history, and we completed our transformation. During the quarter, we signed, and in August it closed, the divestiture of our legacy rail business, which is now reported as discontinued operations for all periods presented. We also brought the APR chapter to a close. The asset management agreement was amended beginning in Q2 to reduce the scope of services, and the related revenues are winding down with minimal amounts expected through the third quarter. The staff supporting the agreements and their full cost base have transferred out. In May, New APR Energy sold substantially all of its assets, and that sale crystallized the value of our five percent interest at approximately $60 million. We received $50.4 million in cash, with the remaining $10 million subject to a 12-month holdback and carried as a receivable on our balance sheet.
Against a $7.2 million carrying value, the transaction generated a $53.2 million gain. Our edge data center and AI infrastructure model is now our sole operating focus. When I speak to results today, I'm speaking to continuing operations unless I say otherwise. I will now walk through our Q2 2026 financial performance and highlight the key drivers of our business. Total revenue from continuing operations for Q2 2026 increased 30% to $6.18 million, compared to $4.77 million in Q2 2025, as now presented to exclude the divested rail business. Composition tells the story of the pivot. Technology solutions contributed $3.23 million, our largest revenue line against a zero year ago. Related party services and consulting revenue was $2.91 million, which included $2.71 million of one-time accelerated recognition of the remaining APR deferred revenue. Going forward, AMA revenue will be minimal as it winds down through the third quarter and hosting revenue is just beginning to build.
For the six months ended June 30, 2026, total revenues were $8.32 million, compared to $8.68 million in the same period last year. The modest headline decline is the pivot working as designed. AMA revenue declined $4.2 million on the wind down, while technology solutions added $3.8 million from a standing start. Cost of revenues for Q2 2026 decreased nine percent to $2.73 million, compared to $2.99 million for Q2 2025. For the six months, cost of revenues decreased 32% to $2.82 million from $5.65 million in the same period last year. The decrease reflects the wind down of the low margin AMA pass-through cost structure. Gross margin for Q2 2026 increased 94% to $3.45 million or 55.8% of revenue, compared to $1.78 million or 37.3% for Q2 2025. For the six months, gross margin increased 48% to $4.5 million or 54.1% of revenue from $3.03 million or 34.9% in the same period last year. This improvement in margin quality is structural, not seasonal.
It reflects the shift of our revenue base toward technology solutions and infrastructure services. Operating expenses for Q2 2026 were $3.4 million, up two percent compared to $3.32 million for Q2 2025. For the six months, operating expenses were $7.63 million, compared to $5.11 million in the same period last year. The first half increase reflects deliberate investments: growth hiring, public company costs, and stock-based compensation put in place ahead of the second half revenue ramp. Income from operations for Q2 2026 was approximately $50,000, compared to a loss from operations of $1.54 million for Q2 2025 — a significant improvement in moving towards profitability as a data center infrastructure company. For the six months, the loss from operations was $3.12 million, compared to $2.07 million in the same period last year, reflecting the Q1 investment period ahead of revenue; the increase being largely the result of non-cash compensation.
Including the $53.2 million gain on the sale of investments, income from continuing operations before income taxes was $53.6 million for the quarter. After an income tax provision of $5 million, net income from continuing operations was $48.7 million, compared to a loss of $1.6 million in Q2 2025. The loss from discontinued operations narrowed to $0.8 million from $1.9 million. Consolidated net income for Q2 2026 was $47.8 million, compared to a net loss of $3.5 million for Q2 2025. Basic earnings per share of $1.61 from continuing operations and diluted earnings per share of $1.37, and a loss of $0.14 per share in the same period last year, also from continuing operations. For the six months, consolidated net income from continuing operations was $45.6 million, or $1.70 per basic share and $1.41 per diluted share, compared to a net loss of $5.6 million or a loss of $0.21 per share in the same period last year.
As we discussed on previous earnings calls, returning to positive adjusted EBITDA has been an important milestone for the company. I am pleased to report that we got there ahead of plan. Adjusted EBITDA for Q2 2026 was positive at approximately half a million dollars, excluding the one-time gain on sale of investments and stock-based compensation. We expect adjusted EBITDA to remain positive in both remaining quarters of 2026, with meaningful expansion in Q4 as the GPU deployment ramps. Shifting to the balance sheet. The company ended Q2 2026 with $112.3 million in cash, compared to $15.5 million at December 31, 2025, and stockholders' equity of $207.4 million. The increase reflects the $50.4 million received from the sale of substantially all the assets of New APR Energy, our March public offering, and our $55 million registered direct offering completed in June with a single large institutional investor.
We are effectively debt-free, with no borrowings beyond a small insurance financing balance. The Columbus seller note and our planned GPU senior debt facility arrive in the second half by design, matched against the assets that they fund. The number I am most proud of this quarter is operating cash flow. Cash provided by operating activities from continuing operations was positive $11.9 million for the first half, a swing of nearly $20 million from the prior year. Our customers are funding our growth. $18.8 million of long-term deferred revenue, which includes the customer prepayment under our GPU program, sits on our balance sheet. Offsetting the $50.4 million gain on investments were investing outflows of $77.1 million with stage growth capital: $68.8 million of deposits against our GPU equipment program, $5.8 million in deposits on real estate and edge data construction — assets that begin producing revenue in the second half.
Subsequent to quarter end, we completed the $30 million acquisition of our Columbus, Georgia data center, structured capital efficiently with $15 million in cash and a $13 million zero-coupon seller note, repaid only as incremental power is delivered to the site. Columbus is being equipped to support 2,304 NVIDIA B200 GPUs. Put together, our financial position gives us the ability to meaningfully deploy capital to support our expected growth in the second half and beyond. Turning to our outlook. I want to be explicit about our guidance philosophy. We guide to what is contracted, deposited, and scheduled, not to what is possible. Our outlook assumes no acceleration in GPU energization and no contribution from transactions that have not closed. At the end of Q2, 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 contracted technology solutions deferred revenue recorded in 2025 will be recognized as revenue in 2026, further supporting the company's performance. Based on these committed contracts and near-term pending orders that are already performing or are scheduled to be executed through the remainder of 2026, we are reconfirming our expectation for total revenue in 2026 to exceed $50 million. Let me briefly walk through how we bridge from $6.18 million of Q2 revenue to our full-year target. Our GPU-as-a-service business is the primary driver, which we expect to contribute approximately $26 million as the deployment comes online and utilization ramps in the second half. In addition, we expect approximately $25 million from our technology solutions backlog, a solid base of committed revenue that includes $2.9 million currently recorded as deferred revenue to be recognized in the second half.
We remain confident in this outlook given the accelerating demand for our Edge Data Center model, continued customer expansions, new hosting deployments, and continued capacity build-out. On profitability, we expect positive adjusted EBITDA in both Q3 and Q4, with fourth quarter adjusted EBITDA in the range of $8 million-$10 million. The way to understand 2027 is through our Q4 exit rate. In the fourth quarter of 2026, we expect recurring infrastructure revenue, GPU-as-a-service colocation and hosting of approximately $17 million-$18 million, which represent an expected annualized recurring revenue exit run rate in excess of $70 million, contracted under multi-year agreements and carrying gross margins well above 70%. For full year 2027, our early framework calls for total revenues of at least $160 million. A full year of the GPU program, a full year of our contracted colocation deployments now in development, and continued growth in technology solutions.
That framework includes only announced and contracted programs. Additional site acquisitions and partnership structures in our pipeline will be incremental. We expect adjusted EBITDA margins to expand very significantly in 2027 as the recurring revenue base scales against a substantially fixed cost structure, and we will provide formal 2027 guidance with our Q3 results. Six months ago, this company was a ramped services business with an asset management side agreement. Today, it is a funded, effectively debt-free data center infrastructure company with $112 million cash, positive operating cash flow, 2,304 NVIDIA B300 GPUs being installed in a facility we own, and a contracted path to an annualized recurring revenue exit rate above $70 million. The pivot is complete. Now we execute. Doug, I'll send it back to you for your final comments.
Thank you, Adrian. I told you it was going to be exciting stuff. As we look ahead, we believe Duos is entering the next phase of its evolution with a stronger balance sheet, a simplified operating structure, and growing momentum across the Edge and technology solutions businesses. We believe these dynamics position us to extend our growth trajectory into 2027 and beyond. With 25 megawatts of contracted capacity planned for deployment in 2026 and now more than 75 megawatts under contract following the Axe Compute expansion, a growing backlog, and increasing demand for AI infrastructure, we remain focused on execution and on converting the opportunities in front of us into long-term recurring revenue and shareholder value. I'd like to thank our employees, customers, partners, and shareholders for their continued support. With that, let's open the line for questions. Operator?
分析師問答
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Due to the interest of time, we ask that each questioner limit themselves to one question and one follow-up. Thank you. Our first question comes from the line of Brett Knoblauch with Cantor Fitzgerald. Please proceed.
Hi, guys. Thank you for taking my question and congrats on the quarter and what seems to be a flurry of good announcements. If we could start with the news of the day with the Axe Compute announcement. Was that 55 megawatts IT load or gross? Is that incremental to the previous 10 you signed with them? So it would be maybe 65 in total with Axe Compute, or maybe I'm misunderstanding that. Is it 55 in total?
Hey, Brett. Doug Recker. Thanks for the call. Thanks for the questions. Yes, that's gross. The 55 megawatts is gross. So that's in addition to the 10 megawatts that we already signed. So the 10 megawatts that's being deployed in Georgia, and you have another 50 megawatts plus contracted recently. Actually, this week.
On where that capacity is going, have you guys already secured those sites? If they're secured, you kind of maybe identified and paid for those sites, or is that something that's kind of TBD?
Yeah. Our strategy is this. What we do is we go out to the market, and we find multiple sites. Right now, basically in our sites, there are six to seven that we are looking at. Two are in LOI status, and those sites will pick which ones come up the fastest. The majority of our sites, just so you know, and it is good for everybody to understand, these are not behind the meter. These are where the electricity utility already has the power transitioned down. That means it is already at the site. I do not have to go through requests with the energy provider to make sure I can get it. These are powered sites that are ready to deploy immediately.
Okay, awesome.
To answer a little deeper for you, the sites are in Texas. There are a few sites in South Carolina, Iowa, and Alabama. These sites that we are actually under LOI and actually in the process of purchasing have power to them already.
Then some interesting for the JP. Am I right in thinking that they are going to maybe spend $140 million up front for their 49% stake? That $140 million should effectively pay for most of the data center CapEx. So you are kind of getting a 51% stake in a fully built out data center portfolio through this deal.
That's exactly correct.
Okay.
Remember, the other key component so you can do the math. Everybody's going to ask this, so I want to answer the question there for you. Remember, we're actually looking at our numbers now as we're building. We're coming in under $6 million a megawatt. You can see that we need to contribute basically $30 million per site.
When you say per site, per kind of EDC deployment, right?
Right. For the two locations that we're deploying for Axe Compute. Correct.
Okay. On the zero latency, kind of non-binding term sheet, I was trying to think about this. These are maybe your lower power density cabinets that you are effectively trying to lease for these sites to focus maybe more on the high power EDCs?
Correct. So basically what this is, let's think in your mind, a bare metal provider. They are looking at all 15 of our sites. It is a 10-year deal. If you take 15 cabinets, basically, they are consuming the whole pod.
The next question comes from the line of Edward Woo with Ascendiant Capital. Please proceed.
Yeah, congratulations on all the progress for everything you guys have done. My question is: is there any change in the competitive environment? Thank you.
Our niche, obviously, as you can see, is anywhere from 1-20 MW. That is our niche. You are starting to see the demand increase rapidly. If we went through our funnel, we would probably be here for another 30 minutes. What we are seeing in that niche is also enterprise customers coming out saying, 'Look, we need 2 MW.' They are getting away from their original enterprise data centers. What you are going to start seeing is people coming to the market doing the same thing. We are not rocket scientists over here. We hit a market, and it is about to explode, and you can see that just from our funnel. I anticipate other people coming out, but the key is, do they know how to deploy modular? We have the upper hand. We have deployed modular for the last nine years. Number two, what is critical to our business that we need to focus on is we have a patent. I am sure everybody is aware that the patent called the clean room. When you deploy GPUs, they are extremely sensitive to dust and pollen. Without that clean room, people are not putting $40 million worth of GPU or $100 million worth of GPU in a cluster that is in a modular environment. That is one of the main key differentiators that we have in the market right now.
That sounds great, and congratulations on everything you guys have done, and I wish you guys good luck. Thanks a lot.
Thank you, Ed.
The next question comes from the line of Scott Buck with Titan Partners. Please proceed.
Yes, Scott.
The next question will come from the line of Bill Papanastasiou with Chardan Capital Markets. Please proceed.
Yeah, good evening. Thanks for taking my questions and congrats on all the progress. For my first question, there was commentary on expanding demand funnel and contracted backlog. Can you help us size that up? How long approximately do you think it would take to clear that backlog? Thank you.
Yeah. The beginning orders that we signed are cluster number one and then the expansion in Georgia for the additional 10 megawatts. We see that coming up by the end of the year. We're on track to do that. The second piece that we signed, we're expecting to see that in the middle of Q1. If all cylinders hit, we'll definitely see that at the beginning of Q1. We're giving ourselves some leeway there, so we're going to say the end of first quarter, which is very strong. Figure that's under six months worth of delivery. It's strong.
Appreciate the color there. Apologies if I missed this, but could you just walk us through which markets remain the most attractive for your business in terms of scaling the portfolio? Has the recent political headwinds impacted the strategy at all? I'm assuming not materially, given the size of the sites that you're standing up. Thanks.
Yeah, you're absolutely right. That's the other secret sauce there. We're under 20 meg. When you go into a market and you're under 20 meg, you're really not hitting the radar. We're focusing on what we call stranded power. There's a lot in South Carolina. There's a lot in Iowa. There's a lot in markets where pricing is still around $0.04 - $0.07 per kilowatt-hour. We're focused on those markets where we find the stranded power. Also, the second strategy is there are Bitcoin miners out there that weren't successful, that actually had powered sites, and we're looking to take a lot of those over, and those are in the range of 5 - 20 megawatts. Remember, we didn't disclose our funnel, but in our funnel, we have a ton of use cases for two to seven megawatts. We're going to start hitting those as well.
Appreciate that. Thank you.
The next question will come from the line of Scott Buck with Titan Partners. Please proceed.
Hey, sorry about that, guys. First of all, I'll echo the congratulations that you received already. Doug, I'm curious, could you go a little deeper on the pipeline in the tier three, tier four markets beyond the 25 megawatts and the 55 for Axe? What is the binding constraint going forward? Is that power? Is that capital? Is that customers?
Great question. What we see is that the tier three and tier four markets are primed for us. We're still within 130 miles. We're still under five milliseconds everywhere we go. There's still fiber available. Fibers are short builds into these locations. But what we really see is that's where the stranded power is. That's where there's power that we can consume right away. And the market, as far as backlog, I could tell you strongly, just in our local funnel within the house here, not with people calling us, which is another log, we're well over 100 megawatts in 5 - 10 megawatt tranches in our funnel just for this year. Obviously we can't hit it this year, but these customers are calling us asking, 'Hey, can you get it into the next six or even nine months?' Those are the ones we're focusing on now. The key to this business is to deploy quickly, but you want to do it right. You mess up one time in this business and you're done.
I've done this 30 years, and let me tell you you have to do it right because these customers rely on your power 24 hours a day. We're doing it right. We're not throwing a bunch of stuff against the wall here. We're doing it right, and we're hitting the right customers. When we say right customers, they're tier 1 credit. They're very reputable companies. They've been around a long time. We are at a position now where we could be choosy on who we take, which is great because, in this model, you've got to be careful who we sign, and we're very diverse in our customer base. We don't have one customer taking up all our bandwidth here.
Great. Doug, on speed of deployment, in Columbus, what was the actual timeline from site selection to actually billing customers?
This will blow you away. We actually had our customer do a visit last week on Thursday, and they were blown away. To be honest with you, I was blown away too. We bought this building at the beginning of July. As of mid-August, we've installed over seven megawatts of new infrastructure. When I say new infrastructure, that means you take a building, just the shell of the building, you bypass everything that's in the building except for the fiber build-out, and we brought everything in brand new. Everything. From generators to cooling plant, all the way to PDUs, to cabinets, to everything. Lighting, raised floor. We put 17,000 sq ft of raised flooring. We did that all under 60 days.
Wow. Okay.
I challenge anybody to do that.
If I could squeeze just one last one in for Adrian Goldfarb. You mentioned in your prepared remarks some of the upsized costs in the first half of the year. I am curious: we should view that kind of uptick as one-time in nature, and as we move into 2027, see a more muted OpEx growth. Is that fair?
Absolutely. You got it in one. We have just come off a very complex period, the first two quarters of the year, where obviously the APR Energy sale and the divestment of the rail business created a lot of very complex accounting. Then with the shift in staff and everything else. All those costs that are in there are very much one-time in nature. We closed last year when we still had APR Energy here. We had about 100 people. Now with the divestment of the rail business, we are down to about 25 full-time people. The SG&A is growing now very slowly, and the cost really will be more associated with specific opportunities. We've streamlined our operations. Yes, very much one-time.
The next question comes from the line of Justin Tapper with Shea Capital. Please proceed.
Hey, Doug. Just a couple questions for you. Maybe on the Axe deal, anything you can talk about, sort of, I assume, who the end customer is just in terms of end. I know that you said they're going to deposit $140 million, so I assume it's a decent tier credit customer putting in the cash. But anything you can help on the end customer here?
Absolutely. They are a tier 1 hyperscaler. They did visit the site in person last week. We know we can't disclose who they are, but I can tell you they are extremely credible and creditworthy. Actually, we funded our GPUs based on that customer. So they're very solid. This is part of the Axe deal as well. We wanted to make sure, obviously, we're getting into this SPV, that the money was there and that this customer is creditworthy and will stay for the five-year term. We did our due diligence, and we're very confident about it. Also, Justin, I want to let you know that I have Dipan here in the room, and I wanted him to give you a quick outlook on what this SPV is, just so it is clear, because I know I'll get a ton of calls. Dipan, please give Justin a quick background on what that SPV looks like.
Thank you, Doug. Hi, Justin, and everyone. The SPV is a vehicle for us to fund the development of these data centers. While we will be the managing partner of the SPV with the majority share, we will get the cash injection from Axe for an equity position, and then we will develop out these data centers with a lease from Axe as well, and then an off-taker.
Got it. Then maybe just a follow-up: the deals you have done have been, I guess, five years, and I look at some of the peers out there that are signing bigger deals, but I realize you are in a different market and looking for, as you said, sub 20-megawatt deals. Just what is the longevity of your pods? How do you think about duration of deals? Because the payback period is pretty attractive so far on the five-year deals you signed here.
So Justin, our lifespan on our pods and our facilities is well over 20 years. The only thing that we will swap out over 10 - 12 years would be the batteries on the UPS system. But the infrastructure itself is well over 20 years.
Okay, great. And maybe just one last from me. If my math is right, basically based on this SPV, based on the cash on your balance sheet, and I think you said you might have to put $30 million or so per site on this new deal, you should pretty much be covered for these deals. Just maybe talk about going forward and funding how you think of signing the additional 100 megawatts you talked about in the pipeline — how you think about financing things going forward.
Yeah. So basically what this does, and why I chose to do this deal, was it gives us the cash to buy infrastructure soon on these projects. We need to order that stuff now. What that also does is it will bring us revenue that we can actually borrow against. So the debt financing will follow this. We are not in this game to dilute our investors. So this was a good decision for us to do this partnership. Now when I go out for capital, I have that strong SPV we can borrow against. So I have infrastructure that is $140 million that I can borrow against. It will allow me to buy time now to get our revenue kicking from the GPU program. That will give us more credibility and more money on our balance sheet.
Yeah. Per month.
Oh, per month. Yeah.
The next question comes from the line of Nico Sacchetti with RBC. Please proceed.
All right. Please don't kick me off this time. I hope I have good service. It is commendable. I think that you're not getting enough congratulatory remarks because you guys pulled off something that doesn't happen very often, which is: you said you were going to do something, and then you did it. It's pretty incredible that you've got all these great things that are happening. I think the majority of the trickiest part is behind you. I still hear some things where there seems to be some confusion around it. I would like to reframe this to make it easier to understand: instead of this being a data center company, think of it like a company that builds apartments and rents them out. There's two components to this business. Our model, as I take it, is we build these units. Suddenly we needed $30 million for a unit. We didn't have that capital, and we didn't have cash coming in, so we couldn't access debt without diluting shareholders.
I appreciate you doing something good for us. That scenario is behind us now, right? Obviously, if you have a massive opportunity and dilution looks like the right thing to do, I wouldn't ask you to say you're permanently done, but it seems behind you. I feel like you've been getting hit inappropriately hard on the short side. I do not know if you realize this, but there is over 5 million shares short your company. I am pretty sure it is because you have not made money historically, and you have been raising money several times. It is important to clarify that you now have these apartments built so that we could get a tenant that we already have locked in a contract to start renting this space out. When we have the combination of the tangible asset and the contractually obligated high-margin revenue, that will clear the cost of capital to use debt on new projects. That has been my understanding of the model.
I think it is a lot easier to think about this because unlike an apartment, if push came to shove and our renters dried up, I do not think the location matters that much, but we could pick it up with a crane and move it to a more favorable location, right?
Yeah. You are answering my questions. When we go into a market and deploy 10 megawatts, if that customer goes away in three years, my infrastructure is almost paid for by then. Number two, the power is in such demand. Right now, if I had 20 megawatts available today, I have probably 16 customers lined up to take it. That is how strong this market is right now. The other thing is enterprise customers that are in legacy data centers are upgrading to AI and need much higher power per cabinet. Those legacy data centers cannot provide the cooling or power expansion because they are landlocked. Fortune 100s are calling us asking, 'Can we deploy a meg with you? Can we deploy two meg with you?' That is where the market is going. We're focused on neo-clouds right now. Our market just opened wide to that sector. Those customers are expanding and have no place to go. Where are they going to go? They are going to go to where the network is and the power is in a reliable data center. It does not matter if they are 130 or 140 miles outside of town because the networks are stronger now.
The old standard unit suggested it was better from a latency standpoint to have that smaller powered unit right by the school or the hospital. That changed. Just to clarify, the Iowa project is just a contracted revenue for output power that was moved over to Georgia because that had the ability to get cash flowing quicker. It was not that we did not do Iowa. We still own a piece of dirt there. We could get the 10 megawatts ready for them there. Then you said that there is another 10 that you contracted in that same building. Is that what you are saying?
We are adding 10 more megawatts to the existing building. That is correct.
That is the five-year $111 million?
Yes.
What is the rationale behind 10 megawatts going for $176 million for three years and then 10 going for $111 million for five years? Is it like a different product mix?
The first one is mixed with GPU. Remember, the first deployment has the GPU involved. The second deployment is straight colocation. That's what we're in business to do. That's our model.
Thank you. This concludes today's question-and-answer session. Now I'd like to turn the call back to Mr. Recker for closing remarks.
Thank you everyone for joining. Remember, you can always get a hold of me. Send me an email. I'd love to talk about it if you have questions. Thank you all for today's call. I appreciate everyone, and we'll talk to you soon. 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. The earnings call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking terminology 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, 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 Q2 2026 earnings call. You may now disconnect.