Duos Technologies Group, Inc.
Q4 2020 Earnings Call Transcript

Published: 25 Mar 2021

[Operator:]

Good afternoon. Welcome to Duos Technologies' Fourth Quarter and Full Year 2020 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 fourth quarter and full year 2020, 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-K 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 discussed the detailed financials, I would like to state that I'm very comfortable with Duos' financial position at this time. The company now has a strong balance sheet, with no debt, and sufficient working capital and reserves, with expected growth in the business this year. Turning to the numbers, total revenue for the fourth quarter decreased 34% to $3.78 million, compared to $5.75 million in the equivalent quarter in 2020. The decrease in total revenue was driven by fewer systems deployed in the current year period. On a sequential basis, total revenues increased 195% as a result of a delay in receiving an order for a large project, which was initially planned for execution during the third quarter of 2020 and it was substantially completed in the fourth quarter. Revenues also increased as a result of certain clients, allowing Duos employees to visit facilities after their COVID restrictions were relaxed, which helped sales efforts. Total revenue for the full year 2020 decreased 41% to $8.04 million from $13.64 million last year. The decrease in total revenue was driven by significant delays in expected new orders during the year as a result of the COVID-19 pandemic. The company received no cancellations of current contracts or expected orders with order flow starting to recover beginning in the fourth quarter of 2020.

[Chuck Ferry:]

Thank you, Adrian. For the remainder of my remarks today, I'd like to provide an update on our strategy and 2021 operating plan, which is focused on implementing a number of improvements across the business. Then I'll provide a brief update on our outlook before turning it over to questions. Beginning first with our strategy and operating plan. As a reminder, in September 2020 after joining Duos, we conducted a company-wide assessment to identify things we were doing well, and areas that needed improvement in the following areas of operations, commercial, finance and personnel. I'm going to discuss each area in that order, beginning with our operations. At Duos, we're aiming for operational excellence and all that we do. To-date, we've made encouraging progress across all divisions and are continuing to make improvements. Our newly appointed Chief Operating Officer, Ben Eiser, heads up our operations and has made a very positive impact on the business since joining Duos last November. Our current customers have also noticed and have provided positive feedback on our improved performance and customer service. This is now triggering new orders and other opportunities for our business development pipeline, many of which we look forward to announcing in the coming months. These positive developments considered, we must recognize a substantial work, must still be done this year, and possibly even later on to ensure the business can reliably deliver our technology and become profitable. In just the last 45 days, we've made incremental back-end investments in several engineering tools to include 3D Solidworks, along with electrical and optical test equipment, which have helped us more effectively design, develop, test and deliver a new vehicle undercarriage examiner, we call Oblique VUE, which has been under development for some months. Our first Oblique VUE is being installed right now at one of our existing Railcar Inspection Portals. Once operational, it can inspect an additional 21 inspection points on the underside of a railcar at high speed to include the outcome, which is a critical but particularly difficult to see inspection point. We expect to deploy this new device across our other rail inspection portals in the future and it can also be used separately from the portal as well. Finally, we will be filing our patent for this Oblique VUE. As part of the overall engineering development cycle, we've implemented a more rigorous modeling and testing protocol. These new Oblique VUE is an example, we conducted nine rounds of modeling and testing, which also include live track testing at one of our nearby Railcar Inspection Portal sites. Now instead of taking six to eight weeks to make the installation, and then possibly having to go back and fix problems, installations will take no more than 48 hours with unit acceptance tests, finished in a few days. This makes our customers happier, saves installation costs for us.

[Operator:]

Thank you. At this time, we will be conducting a question-and-answer session. Our first question is from Jim Barrett with Barrett Asset Management. Please proceed with your question.

[Jim Barrett:]

Good afternoon, Chuck and Adrian.

[Chuck Ferry:]

Good afternoon.

[Adrian Goldfarb:]

Good afternoon.

[Jim Barrett:]

Chuck, can you discuss to the extended you can, the pending merger -- or the pending acquisition of Kansas City Southern by Canadian Pacific. And can you discuss more broadly how any future consolidation in the rail industry, the pros-and-cons of that as it applies to Duos?

[Chuck Ferry:]

Yes, no, that's a good question and certainly that's been a big topic in the news, certainly in the rail industry. And Harris and I have been discussing it as well. So first off, we obviously, one of our key customers is Kansas City Southern and we've previously made efforts years ago to do business with Canadian Pacific. But to this point had really -- really had a lot of success. Both Ed and I feel that, you know that merger between CP and KCS actually would be helpful for us in terms of, because they’ll basically introduced us by virtue of that merger into Canadian Pacific. Canadian Pacific is interesting because they have rail lines to extend obviously, all the way from Canada through the United States, all the way down into Mexico. We currently operate two of our Railcar Inspection Portals down in Mexico, one for Ferromex and one for Kansas City Southern. So while we think it will be a positive move for us. That said, I think some of the challenges are as Ed was explained to me is that, there is a pretty significant regulatory hurdle for CP and KCS to jump over. They'll have to get regulatory approval from really three governments both the United States, Canada, and Mexico. And so it's going to be -- it’s going to take some time for that process to occur. So in the meantime, we're going to stay focused on our current customers right now. And we'll see how it -- how this works out. Hopefully, I answered your question.

[Jim Barrett:]

That's very helpful. Thank you and good luck.

[Chuck Ferry:]

Thank you, sir.

[Operator:]

Our next question is from William Gallagher a Private Investor. Please proceed with your question.

[Unidentified Analyst:]

Hi. Thanks very much. My name is Bill Gallagher and I'm a shareholder. Two-part question. One is, how do you perceive the current administration's position on the XL pipeline? And then more oil to be moved via railway to effect coming business in the foreseeable future? And second part of the question is, I don't -- I haven't -- I don't know, but do you currently have interest in pursuing business in Europe, as well as Asian countries internationally?

[Chuck Ferry:]

Yes. So that's two good questions. I'll take the first one on the pipeline that was released recently, that's given us top work notice. I think that pipeline was really not active yet. So I think, from my perspective the rail operators that were already -- rail operators have not been impacted by that pipeline. And so they’re carrying the same amount of stuff that they've been carrying really throughout. I do think that if from an administration standpoint, what we're getting from our sources are that, this new administration, obviously, like many before them is trying to hit infrastructure pretty hard. We know that the rail industry is part of that, particularly the transit rail. And so, we also know that this administration, much like the Obama Administration was more interested in using technology to protect our borders versus putting in physical -- physical wall like the previous administration. So we actually see that the new administration here probably been a positive -- being positive towards kind of what we provide in terms of technology, and how we provide it into the rail operators. The second question around Europe, yes, we’d actually be interested in eventually expanding our offerings into Europe. We do have contacts in Europe. Years ago this company did have some operations in Europe. Again, Mr. Harris has strong ties into places like Australia, as well as Europe. And we plan to be to have in those kinds of discussions here with our board, here over the coming years. We're making our improvements. Hopefully, I answered your question, sir.

[Unidentified Analyst:]

Yes. Thank you. And best of luck in the coming year and stay safe. Thank you.

[Chuck Ferry:]

Yes. Thank you.

[Operator:]

Thank you. Our next question comes from Richard Jackson , a Private Investor. Please proceed with your question.

[Unidentified Analyst:]

All right. Thank you. Two questions, if I may, one on since you guys are now booking revenues, I understand, as an application software and server contract sale, how much of the revenue dip would you say, year-over-year was due to the accounting change? And secondly, congrats on Amtrak, are things still moving the right direction with the MTA in New York and the Boston and Washington commuter rails?

[Chuck Ferry:]

Yes, so I'll let Adrian, handle the first question. And I'll take the second one.

[Adrian Goldfarb:]

Yes. Hi, Richard, on the perceived revenue change the -- for 2020 due to be clear, the revenue dip was primarily due to delays in receiving contracts and execution. Although, our model is going to change over time, it become a more OpEx type model with recurring revenues. Most of that really hasn't happened yet. You will see an increase in recurring revenues as we go further forward. As a result of parts of the contract being related to maintenance, which is traditional, and it also to do with some of our licensing that's going forward. So the actual dip is not -- is not related to that.

[Unidentified Analyst:]

Okay.

[Adrian Goldfarb:]

As we move forward, we obviously have to balance the requirements for holding assets on our balance sheet in terms of operating and OpEx model, and a lot of that analysis is being looked at today. But currently in the predictions for certainly for 2021 is our revenues will be kind of in the same light that we've had before, although, you will see the recurring revenue increase slowly over time.

[Chuck Ferry:]

Yes, I'll take the second part of the question -- and -- but add -- kind of add a little bit. So, the business I ran called APR Energy for a number of years, that business we're a little over $300 million, that business was purely in an OpEx model. So at least my experience is, I got a lot of experience around the OpEx model, kind of things. And we think we're going to see is -- as we up our game inside the services side of the business, which is recurring revenue, as well as we're looking at it a little harder at our hardware and software maintenance side of things. You're going to see increases in that -- in that recurring revenue side of the business for sure. In terms of the transit rail, as you mentioned, we're actually finishing up a job right now with Chicago Metro, that's ongoing right now, and we expect to be complete shortly. We do have several other opportunities with some of the transit rail lines, also we've talked about Amtrak, but that's definitely a smaller component of our business development pipeline. And I would anticipate as the year progresses, we'll probably see more activity from transit rail, as well as other commuter systems based on the work that we expect to be doing for Amtrak.

[Unidentified Analyst:]

So, if I could follow-up, you gave a total addressable market on your last conference call, which was very helpful. How much do you think of that is going to be cargo and how much of that’s going to be commuter rail?

[Chuck Ferry:]

Yes. Look, I think, at least for the next year outlook, I think I'll just -- I’ll take it for the next year for right now, because it could certainly change. But right now, I think, the freight rail for us is still going to be the primary component of our revenue, I'll say, at least 65% to 70%. Adrian?

[Adrian Goldfarb:]

Yes.

[Chuck Ferry:]

You know with maybe 30% of it maybe coming in from the likes of Amtrak. But you know, as the details firm up with Amtrak its a fairly, it's pretty significant contract size for us. We'll release those details and follow-up with everybody you'll be able to read about it.

[Unidentified Analyst:]

Okay. Thank you.

[Operator:]

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:]

Well, I want to thank everybody for joining us today. We're very excited about our business. And I'd like to thank you very much for attending. Thank you, operator, and thank you all for joining us on today's call.

[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 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 2020 fourth quarter and full year earnings conference call. You may now disconnect.