Duos Technologies Group, Inc.
Q1 2021 Earnings Call Transcript

Published: 13 May 2021

[Operator:]

Good afternoon. Welcome to Duos Technologies' First Quarter 2021 Earnings Conference Call. Joining us for today's call are Duos' CEO, Chuck Ferry and CFO, Adrian Goldfarb. Following their remarks, we will 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'd like to turn the call over to Duos' CEO, Chuck Ferry. Sir, please proceed.

[Chuck Ferry:]

Welcome everyone and thank you for joining us. Earlier today, we issued a press release announcing our financial results for the first quarter 2021, as well as other operational highlights. A copy of the press release is available in the Investor Relations section of our website. I encourage all listeners to view that release, as well as our forthcoming 10-Q filing with the SEC to better understand some of the details we'll be discussing during our call.

[Adrian Goldfarb:]

Thank you, Chuck. Before I start, let me apologize in advance for my somewhat scratchy voice today. My comments today will be broadly focused on some presentation changes in our income statement. These changes capture the significant strategic and operational changes that the companies undergoing both now and going forward to support a production-focused business rather than one that is engaged in prototypes, and research and development. Going forward, we will be presenting two components. The revenue technology systems, which records revenue from turnkey engineered systems, such as our railcar inspection, portal and AI, in addition to services and consulting, which primarily records recurring revenues from maintenance and support, plus any consulting services that are undertaken. This will allow for easier analysis of the amount of recurring revenues against onetime system deployments.

[Chuck Ferry:]

Thank you, Adrian. For the remainder of my comments today, I'd like to provide an update on our strategy and the progress we're making within our 2021 operating plan. I will then provide a brief update on our outlook before turning it over for questions. At Duos, we're aiming for operational excellence and all that we do. Today, we have made encouraging progress across all divisions. And are continuing to make those improvements. One of our major objectives is to be able to respond faster to customer requirements. This may involve making modifications to existing deployed solutions, or delivering brand new solutions. Typically, an engineering effort might take 12 to 24 months to develop and deploy a new solution. I want Duos to be able to do this in 60 to 90 days. This is a lofty goal, but we recently did it with our new obliquevue vehicle undercarriage examiner. And I've seen it done by technical teams that supported my special operations units when I was deployed to combat. This new rigor and disciplined approach also includes improvements made in our technical drawing packages, bill and material estimates and improved product and project plans. It also includes improvements to accelerate our procurement of long lead parts. In the last quarter, we have eliminated several of our overseas vendors and brought those relationships back to the United States. Several of our parts manufacturing vendors are actually here in North Florida, where we can visit them face-to-face and conduct better quality control and factory acceptance testing, improving overall speed and quality.

[Operator:]

Thank you. We will now be having our question-and-answer session. Our first question comes from Richard Jackson with True North. Financial. Please proceed with your question.

[Richard Jackson:]

Thank you for bringing out the revenues separately for recurring versus contract. That's very helpful. So if I'm doing quick math in the back of an envelope here. You guys expect a significant ramp in revenue. Is this something that you think will go up gradually quarter-over-quarter? Or are you anticipating a jump of 75% to 100% quarter-over-quarter?

[Chuck Ferry:]

Yeah, this is Chuck. I'll start and then Adrian can clean up if I mess up the answer. Appreciate the question, Richard. So what we're really seeing right now is for Q1 and Q2, those quarters are going to be I would say lower performing quarters, let's just put it that way. And then the orders that we're currently negotiating now and are expecting are really going to hit and ramp up and Q3 and Q4 to get to that $18 million top-line revenue in a breakeven position. I would love to have a growth - 100% growth quarter-over-quarter. I don't think that that's realistic. I think once we land in a fourth quarter and meet the guidance that we've had, we are expecting a pretty decent amount of growth for 2022 based on what we're seeing right now. But I think that'll be a little bit more moderate, not 100% growth, but certainly more moderate return. Adrian, do you want to add anything to that?

[Adrian Goldfarb:]

Yeah, let me just add a comment to that. So I haven't spoken about it in today's remarks. But in previous earnings call, I've spoken at length about the impacts of ASC 606, just as a reminder, details how we record revenues over the life of a project. When ASC 606 was putting in a couple of years ago, that has a fact of, if you imagine a timeline was bowing the revenue growth to the right-hand side of the of that timeline, as it relates to putting the proper accounting treatment. So what that says, is that if we win a significant order, for example now, you're unlikely to see the revenues for that occur until Q3 and maybe even in Q4, as those things are installed. So that's the effect, and that's the reason you're going to see that ramp into Q3 and Q4.

[Chuck Ferry:]

We are seeing Richard though, and some of the work that we're currently negotiating, is where we're negotiating work that will actually be performed. And that's part of that $18 million guidance this year, but those contracts are actually now already ordering things into next year. So what we are hoping to find is will get all the orders in. We need to make our current top-line revenue that we're guiding to. But we'll also be able to report. We've got increased backlog for both CapEx obviously, as well as recurring revenue for the following year.

[Richard Jackson:]

If I can add a follow up?

[Chuck Ferry:]

Certainly please.

[Richard Jackson:]

The order you briefly outlined in the press release. When I look at the total addressable market, you talked about November. Is this an extremely large customer or is this safe to say that this type of order could be one of several that are the same size a year or two years out?

[Chuck Ferry:]

No, it is. I'm looking back to the press release just to make sure, I'm looking at the same thing you are. Now, I think we're expecting obviously several more larger orders for this year. Some of those orders involve, putting in new systems. Some of those orders involve adding those modifications that I talked about, to existing systems, as we're going from the 20 inspection points to the 70 inspection points. And then all this new work, obviously, then driving services contracts that go behind it. So as Adrian mentioned, as we kind of bring in and we deploy more systems, that also has the effect of adding additional services or recurring revenue. Hopefully, I'm answering your question, if that makes sense.

[Richard Jackson:]

Well, I think you definitely answered it a little more clearly. So there's not 500 railroads systems out there. So obviously, there's multiple location opportunities within each railroad. Is it safe to say that this order you got did not maximize the opportunity in that one railroad company? It's just a nice order. But there could be many more locations to go with that client? Is that a safe assumption?

[Adrian Goldfarb:]

That is a safe assumption. So the particular customer that took that order, yes. If we continue to do our job correctly, they will order more for that particular class one railroad. We've talked before about the total addressable market across the class one rail system, with approximately 140,000 miles of track. We believe, estimate that total addressable market at approximately at least 150 of our rail inspection portals. And that doesn't certainly take into consideration the number of shortline railroad companies are out there, or the transit space. It's just the class one railroads.

[Richard Jackson:]

Thank you very helpful.

[Adrian Goldfarb:]

Thank you, Richard.

[Operator:]

Thank you. Our next question comes from Bruce Boyd , a private investor. Please proceed with your question.

[Unidentified Analyst:]

Yes, good afternoon. I was curious as to the railroads that you're presently have customers. And the class one railroads that you're potentially looking to market to. Do you have pilots involved with those railroads? And could you kind of give us a little bit more color on how many maybe those pilots are? And what you anticipate over the next couple of years, in terms of addressing those particular railroads and their opportunities for growth?

[Adrian Goldfarb:]

Bruce, thank you for the question. So we're obviously we have three of the seven existing class one railroad customers. We're working with them now. I think it's fair to say that the other class one railroads, as well, as Amtrak have been watching with great interest, our effort with our three existing customers. All of these customers are aware of our technology. We've actually had visits from some of them here and in Jacksonville. So on a go forward basis, with the help of our new board member, Mr. Ed Harris, who has significant and deep connections into the senior leadership really across the entire rail industry. We have - we are now embarked upon a plan and have been in contact with most if not all of the other Class 1 railroad operators. And this year, again, over $18 million with existing customers, while we're also trying to develop these additional rail customers, ultimately with the goal and the objective to become the standard with oversight from the Federal Rail Administration to be across all of these rail customers. We have been in recent contact with members inside the FRA, who are interested in coming to see our technology. Again, that's where we're looking right now. But that's those are those are key commercial activities that we're certainly pushing on currently right now as we speak.

[Unidentified Analyst:]

Great, thank you for the answer.

[Chuck Ferry:]

Thank you, Bruce.

[Operator:]

Thank you. We have any further questions from our audience? At this time, this concludes our question and answer session. I'd now like to turn the call back over to Mr. Ferry for his closing remarks.

[Chuck Ferry:]

Thank you very much, operator. And thank you to everyone who joined us on today's call. Have a great day.

[Operator:]

Before we conclude today's call, I would 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 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 Incorporated 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 Technology Group's 2021 first quarter conference call. You may now disconnect.