Goldfarb CFO of Duos Technologies Group, welcome.
I've tried previous slide.
Okay. Great. Good afternoon, everyone. Thank you very much for spending a few minutes with us. I'm just going to take you through kind of the structure of the organization. I used to do this all by myself, but luckily now I've got some help with me today, and he's far more interested than I am. I just wanted to, some of you may know the company. We've been around for quite a few years, and you may remember us as the rail inspection guys. We've moved on considerably since that time. We still have that business, but we're making a major expansion into a couple of areas, one of them being the data center infrastructure space. Doug is going to take you through all of the strategy behind that. The structure of the company is you've got Duos Technologies Group, symbol DUOT. That's the public company.
I'm CFO of that company. Doug is the recently appointed President for the group. The two of us make up the team that's presenting today. We have three subsidiaries: Duos Technologies Inc., which was the legacy subsidiary. That's where all of our technologies business sits, including the rail business. We will be making some moves in that area as well. We just won't be talking much about it today, probably post-earnings, which will be November 13th. The main area that we're going to focus on today is Duos Edge AI, and I won't steal any of Doug's thunder. Some of you also may have heard about a deal that we did in the power business, and that's Duos Energy Corporation. This was a legacy deal with our CEO, who used to run a company called APR Energy.
Long story short, we put together a deal to provide us with some business as we went through this transition period. The deal was done with Fortress Investment Group, who put a bunch of money into a company. We ended up with the Asset Management Agreement, fondly referred to as the AMA, as it's on here. We also have a 5% ownership in that company. If anybody has questions about this, at the end, I'm happy to take that or come by and see us. Without further ado, I'm going to introduce Doug Recker. Doug is the President of Duos Technologies Group. Please come up, Doug.
It's just that one to go forward.
Just the.
Yeah, the right-hand one.
Gotcha. Hello, everybody. I'm Doug Recker. Oh, they forgot my phone booths here or my yellow pages, if you can see me. I'm Doug Recker. I got about 30 years in the business in the data center sector. I used to own big brick-and-mortar data centers, kind of like you see being built today, called Colo5. In 2008, I exited that in 2014 to a bigger group called Cologix. I had a good exit there. After a five-year non-compete, we started a new business called Edge Presence, which is basically what we're going to talk about today. It's the same model. I exited that about almost three years ago, a successful exit to Ubiquiti Fiber. I approached Adrian because I used to deploy the little data centers on the rail for them for the inspectrum portal.
I knew that they knew technology and they had the infrastructure in place to deploy pods. I went to Adrian and I said, "Look, there's a great business here for tier three and tier four markets to deploy modular data centers to really capture and start peering in these markets because all this data that's going on right now, you need connectivity." The markets are in desperate need of connectivity and to peer. I approached Adrian and I said, "Look, let's build these micro data centers and we'll go to a tier three market like Amarillo and we'll partner with the education sector because education and healthcare are really the main need for better connectivity in these markets, in the tier three and tier four markets." The issue now is in those markets, they only really have two carriers and they don't have robust networks.
They're not built like a tier one market, yet they want the same technology. They want to grow into AI, they want to grow into other applications. What we did is we started the first one in Amarillo, Texas. We partnered with the education sector, which was Region 16. How the regions work in Texas is you have a basic region center that supports, say, 52 schools in that region. Currently, how they're set up is the schools run back to a major data center in a tier one market. It's almost 500 mi for these little schools to get to AWS, to get to their learning curriculum and their platforms. The region center basically supports all those schools. We decided to place these mini data centers behind the actual school. I'm not a big slide guy, but I want to show you a picture.
This is what a mini data center looks like. It has 15 cabinets inside. The focus here is to deliver basically better connectivity for these markets. When we drop this pod behind the region center, this is the actual school district. It's like the mothership for all the schools. There's no classrooms in here. This is where all the HR is done, where their mini data center is for the campus, for all the schools. They feed back to this building. What was happening before is they didn't have the generator backup. We dropped two generators. They didn't have a robust data center in these buildings. Basically, they had a lot of CapEx cost.
We approached them and said, "Look, we'll put this mini data center behind your building, which basically is like a tier three data center, has backup to everything, two generators, two UPS systems, A and B feed to the cabinet." It's like they're in a tier one market in a big data center, but we're putting it behind their building. The advantage to them is this. One thing is now they don't have the CapEx to pay for the cooling that's inside the building. They don't have to pay for their generators. Most of them don't even have generators or their actual UPS and all that upkeep. They don't have to do that anymore. Now it becomes an OpEx model for them instead of a CapEx model.
What happens is, let's use Region 16 as an example, that little data center that they had inside the building, they moved it out to basically behind the parking lot, which this is the actual pod behind the building. Now they don't have any of that cost and it's a recurring cost for them. Now it's an OpEx model. How we set this model up is basically in this size, basically pod, there's 15 cabinets inside. There's 15 sellable cabinets. On average, they're $1,800 a piece. That's what we charge the actual customer. It doesn't matter if they're taking one cabinet or all 15. We get 15 customers in one pod. The goal here is this. Once we drop it at the education center, we bring the carriers in that normally aren't peering in these networks. You'll have Verizon, you'll have Lumen, you'll have Zayo.
They're all in independent huts, their own networks. Now they can actually come in here and co-locate together and cross-connect and peer and create better networks for that area. Right now, it doesn't make sense to build a $30 million or $40 million data center in Amarillo, Texas, or Corpus Christi or Waco, Texas. It does when you deploy a $1.2 million box. This is $1.2 million fully installed, customer-ready. That means the generators are in, the cooling, everything is redundant. Basically, they're having a tier three data center on their property. We take advantage of the school system. It benefits the school system, number one, because they get better connectivity and now it's an OpEx model for them. The goal here is to get it in that market and then start selling the carriers in. Who else takes advantage of this is the mobile operators.
Basically, currently how the mobile operator works now, it hits the tower. The tower has fiber going back to that main data center. That main data center for this market is probably Dallas, which is almost 500 mi away. You know the latency issue, number one. Number two, the size of the pipe that they have to have is big because all that data now that's coming over your phone has to get back there. What they do now is they cache in that market. All the important data hits there, comes right back to the tower. Instead of being big circuits, latency and all that goes away now. That's really the core of the business, to build the network out. Once you have the network built out, who else wants to come in? The local hospital, because they don't have the redundancies built in.
Number two, they don't have the CapEx. They don't want to build a data room out that they have to upgrade because of their new AI product. They don't have to do that now because we can go up to 100 kW a cabinet. They would have to redo their power infrastructure, they'd have to redo their cooling infrastructure. Eight years ago, when I first started in this business, this wasn't a big deal. It wasn't a big deal for AI. It just happened. We didn't build this business model based on AI, but it's an add-on now that they can do AI. I'll give you an example. When we dropped this first one in Amarillo, Texas, it was for the school system. We would go after the education sector, number one, healthcare, mobile operators. We have a client that came in, took a cabinet, and he has a ranch.
He's a huge ranch, 30,000 + head of cattle. What they're doing now is they're watching the cattle with drones. All that information can't go way back. They need to cache locally with that. Now, 16 mi down the road, they can do that instead of going way back to Dallas or Houston. Those are the little things we're learning as we grow that weren't a piece of our model, but are add-ons now, which are phenomenal. Now we're going into Corpus Christi. That's our next market. We have six of these on the ground so far. We committed that we'll have 15 by the end of the year. We're on track to do so. I'll give you an example for Corpus Christi. Corpus Christi, we were putting one in, but the carriers heard we were coming, they filled the whole pod before we could put it on the ground.
We're actually putting two in Corpus Christi. What you'll see throughout this model is we have room to grow and put more pods. They'll start to fill up even more. We're not building them out hoping they'll come. We have an anchor tenant, which is the school system. That's why we're deploying with the schools. They're our anchor tenant, and then we bring in the other carriers and everybody else. Once you create that core, once you have those carriers in there, they won't go anywhere else. You own that market because once you create a carrier hotel, there's no reason to put core gear down the street. Once this is in the market, it'll feed everything else that's coming into town. It'll help manufacturing, autonomous vehicle, all that stuff in the future. We're really focused on building the core out right now, and that's what we're doing.
We committed to, let me see, oh, I don't like slides, but we'll go on. This here, this is how we're different than other people that are deploying. What we learned over the years of deploying these pods, which by the way, Edge Presence, my previous company, was the only one that did it. What we learned from experience is over two years, what happens is that's your main data center near door. Traditionally, you would walk right into the data center. Now you have 200 sq ft of 60 ton of cooling. Imagine walking in that. It's like a jet engine of air coming at you. It would suck the particles from outside and bring it in the data center. After a couple of years, we noticed that the servers were getting dust on the fans. Even though the AC units filter the air, it couldn't capture all of it.
Dell would come in and say, "We can't honor a warranty on this thing. There's too much dust." I'm like, "How do we fix this?" We just got awarded our patent in September, the first ones to do it. We put a clean room on a modular data center. Basically, this clean room that you see, the building that's attached, works two things. It's a clean room and it also is a man trap. It helps us hit our auditing standard, which is SOC 2. When you walk in the door, there's biometric and a keypad. You walk in, the door shuts behind you, the AC units kick on, the air filtration burns for 30 seconds. A green light comes on and says, "Okay, you're clean. You can enter the next door." You do the same process with your biometrics and your key card and you get in.
That's your auditing standard, number one. Number two, it cleans all the particles off. Now the warranties won't go bad on equipment because that dust is not getting inside. We got awarded that patent in September. We're extremely excited about it because now, history-wise, a cabinet was about $100,000 worth of gear. Now it can be $2 million. Imagine deploying GPU, deploying any kind of high-end equipment in a modular data center without having that. You are not going to take that risk. That's really why we came up with this model, number one. Number two, it separates us from the competition. Right now, we don't have competition. There should be, there will be, but we're proving the concept out. Now we're public. We're a public entity so people can see it. It's exciting for us.
We're on track to do the 15 this year and next year are 45 more. We're kind of slow rolling because we want to make sure we get the process down when we're installing this at scale. Before the prior company, we didn't scale this fast. You want to make sure you're deploying correctly. That's what we're doing now. Adrian will talk about the raise we just completed in a little bit, but that'll fund us through next year and going forward with this model. What else I wanted to tell you about was important. Basically, the sector is really telecom. You get the carriers in there, you build that core out in that network, you build a core in that market, and you lock that market down. Everybody will have to basically cross-connect to us to get to more robust networks. You own the market.
I don't know if we list each market we do. Okay, these are the states that we're going to. Right now, we're just focusing on Texas. You'll see the next 65 pretty much in Texas alone, but we just got awarded one in Illinois. We're going to start going into Illinois soon. We wanted to keep our focus in Texas because we're small, we're growing. I wanted to keep the unit together in a state, but now the need is there. We're starting to grow. Now that we raised the funding, we're building our organization. It's exciting stuff. We've talked a little bit about partnerships. We partnered with fiber providers now. FiberLight is a partner.
We're doing another partnership this week with a big GPU as a service company, which is kind of interesting because now we can deploy, they can sell their services, they don't have to worry about a facility. We handle the facility. We'll take control of that. The customer puts whatever they want in the cabinet. We don't care what they put in there as long as they need power, cooling, and cross-connects. That's why we're in business. Do you want to go over the management team here real quick? This is our board of directors. We're starting to add more. We see a new board member, Brian James. He used to own NTI. He was one of the founders. We're starting to bring data center focus into the business.
We're really shifting into a data center business, not just because it's hot, it's because of what we know and we're good at it. You'll see another division of the business opening here soon, which is on the infrastructure side of the data center business. We're really starting to grow the business data center focused. This is the current management team. I'll turn it back over to you.
Thanks, Doug.
You're welcome.
Sorry, I'm losing my voice because you had me talking all day every day.
He's losing his voice, so I'm not losing mine. This is the management team. As I said, Doug's just been appointed President of Duos Technologies Group. He is going to be leading us here going forward. I'm currently the Chief Financial Officer. I've been with the company for about 10 years. As I joke with Sam, about 10 years into a two-year assignment. Leah Brown, who works for me, takes care of the accounting side of things. She's busy back at the ranch trying to put Q3 together, which will be announced November 13th. Jeff Necciai is our CTO, and he's primarily overseeing the rail business and the transformation of that. These are some historical financials. That happens to be Q2.
The difference now is that we are pretty much on a growth path, whereas for the last few years, we've been anywhere from sort of $8 million to $12 million to $8 million to $7 million to $15 million. It's been back and forth, and it's largely been driven by the fact that the rail business is just a very, very lumpy business. We took the decision in conjunction with the hiring of Doug to kind of transform the company, move into this new business where we could build, number one, a strong recurring revenue business. We are going to be expanding that. We're not totally public with all of that right now, but it'll be in the infrastructure business area. We also used our connections in the power.
The Duos team, which is currently about 90 staff, is overseeing the deployment of these gas turbines, which is our relationship with APR , and we have a 5% ownership in that company. That's the historical financials, and those are going to be improving as we go forward. This is what the balance sheet looked like pre-raise. Doug mentioned we did a big raise, biggest in the company's history, completed just in August, right at the beginning of September. We raised $45 million, which is exactly 4.5 x the size of our largest raise ever. We did that with Titan Capital Partners.
I was a little skeptical, but when we went and we presented our plan, this plan to grow out the edge data centers, they said, "We believe that we can get a whole bunch of institutions, ones that probably would never have looked at us before." We were very successful with that. That's now given us the capital and allows us to bring forward. That's the historical balance sheet. It's going to look considerably bigger than that when we report in Q3. Just for those of you who may want to ask the question, we have about $35 million in cash on the balance sheet. We have no debt, and that includes all of the CapEx that we've used to build out these first 15 sites.
We expect to be able to get through next year to add about $ 45 million-$ 50 million more on top of that, primarily using the capital for that and some other cash flow that we expect to generate throughout the year. We expect a strong growing top line. We are cutting back on the staffing. This is generally a cheaper business to run than the rail business has been. We actually did some reduction in force in Q3. That won't show up really until Q4. As we go through and go on the power business, the power business is primarily funding the rest of the staffing. Capital structure, this is post-raise, so you get a good feeling for the capital structure. About $18 million in common stock. There's about $2 million in restricted common. That's almost completely owned by the management team. There are warrants. There's 375,000 warrants.
Those are just a hangover from the bankers. That was their piece of the additional piece of the action. We issued to the investors, we issued no warrants. It was a straight common stock deal done at $6. I believe the stock closed at about $8.30 or $8.40 today. We're up considerably from the raise. I said it was just completed in early September. We never actually touched, even though we did it at $6, we never touched $6, or if it was, it was for about 10 seconds. We've been pretty much up since then. There's obviously a lot of expectation, and I think we're going to make everybody happy going forward. We get a lot of questions about the Series D and Series E, a lot of nervousness around it. What's that? Are there ratchets and so forth?
That is literally our largest shareholder who now owns about 24% of the company, has been a long-time supporter of the company through kind of all the trials and tribulations with the rail business, now into this, provided quite a bit of capital. He basically chose to hold this as this series of convertible preferred. There are no ratchets, there's no coupon. It's just another way to hold common stock. The numbers you see there is the common stock equivalent, and that's really all it is. He can convert it at any time, but it was a way for him to keep his ownership under 20%. Total share count fully diluted, it's about a little over 26 million shares. The market cap, it's a little bit higher than that as of today, but we'll call it $140 million just to keep it straight.
With that, I'd like to thank you for taking the time. I know there's a lot of presentations, and we have just about five minutes for questions. Doug, if you wanna come up, you start with you.
Yeah, is the large shareholders a high net worth individual or?
It's actually a family office. It's actually quite an interesting, I mean, you can look it up. It's public. It's Black Rotor. They used to own First Eagle, and that was sold off to Blackstone. It's a family office. I don't know exactly how big it is, but it's probably in the billions.
Was that raise a shelf offering or was that a follow-up?
It was a shelf offering, yeah.
Now that your stock is up even more, will you think about another raise?
No, I'm trying to make everybody, all of our current shareholders very happy by saying I have no current plans to do any more raises. The question might come up since you'll ask it, you know, while you're planning all this growth and it's a capital-intensive business, do you need to raise money for that? Short answer is probably not. We have enough capital now. We expect the cash flow to start generating from this and from other businesses we're starting to get involved in. The one thing I might do is I might do some kind of an asset back line in order to, if the expansion goes faster. Sorry, this gentleman here. Oh, yeah, there's one here. Yeah.
Doug, you said that you had a business that did a similar thing that you sold, and now you're doing the same thing. Is that previous business currently competing with you or what are they doing now?
Yeah, the previous business that I sold does do the same thing, but they're focused on the mobile operators. They deploy basically for DISH Network and like a T-Mobile. They're more focused on one basic customer. I focus on multi-customers. The difference is it's basically the same model, so it's proven out. I want to be able to diversify my pod and really bring carriers in. Their focus is more mobile operators. When I deployed with them, I realized, wow, the mobile operators actually need carriers, local fiber carriers. That's the key. Once you own those, then they have to come to you. My competitor would have to come to me to get to those networks.
Do they have any patents? It'll be funny if your own inventors are using this in the.
No, they don't have any other patents, no. They don't have any patents, actually. It's the same model that I have now. Yeah, it's proprietary now just to us.
One of the legacies of Duos is we were very good at getting patents both on an existing business. When Doug came, I said, "Yeah, we can probably get that." Sorry, was there a question over there? Gentleman at the back?
Once you put the data center in, you operate it?
Yes, absolutely. Yes, we operate and we have two network operation centers, two NOCs, one in Texas and one in Jacksonville. What those NOCs do, they monitor everything from the cameras to the fuel levels in the generators. When somebody walks in the door, we know who they are, what firm they're with, what time. That's how we keep our SOC 2 certifications. That's how we can do financial institutions in there and hospitals, HIPAA compliant. Yeah.
I have a second question. I'm a slum boy. I've got three buildings in Salt Lake City. I'm converting one to a data center, but I don't know what I'm going to, I don't know who I'm putting in there. Could you be a candidate for installing your data center portability into an existing city building?
It costs more money for me to go in your building. It makes more sense for me to take up eight parking spots in your parking lot.
You'll clean it out.
I mean, it's still, I make my pods somewhere else, and when they come, you drop them on the ground, you plug them in.
Will you operate it?
Absolutely. Yeah. Anything that's a data center, we consider an edge device. It doesn't matter.
You've already got the customer.
There you go. Another outfit is, you know, we have a bunch of stuff going on, but there's a hospital that has 305 locations. They want us to build a pod that's six cabinets, and it's privatized just for them. They don't want to manage the facility. They don't want to manage the generators. We do all that. That's what we're good at. They put their stuff inside.
I've got the University of Utah on it.
We need to talk.
Yeah.
Yes, sir.
If the go-forward revenue in the 45 or 40 cabinets that you're doing and the modular cabinets that you're doing, what percent of that would you say is recurring, contracted, just on the range?
Everything in the Duos Edge AI and that subsidiary, it is all annual recurring revenue. There's no CapEx sales or anything else like that. On the Duos Tech side, typically that's been more of a CapEx sale. We've focused obviously on the rail business, but we're planning to grow that far beyond in the data center space, data center infrastructure, but we're not public yet with that piece of it.
Where does that inflection? Do you look at, like, you know, you place a number at 10, 15, and then you mine for the data center or what number are you getting with that out?
It's a very good question. It's going to be a combination. It's going to be a combination of a top line that's going to be growing very fast, albeit with not the margins that we get off the edge data center. You are going to build underneath that, the edge data center, which is very capital intensive, which we have the capital for now. That's going to be very, very high margin, almost the real estate business. The other thing that's going on, I mentioned it briefly in the presentation, is we are cutting back on our SG&A quite considerably. You have a nice combination of those. We will look very different in 2026 from a financial standpoint.
These are long-term contracts too. That's important to know. These are five-year plus five-year renewals. It's a very sticky business.
Yeah.
That's all the time we have. If you have more questions, take it outside, but thank you very much.
Thank you.