Duos Technologies Group Inc (DUOT) 2023 Q2 法說會逐字稿

Good afternoon. Welcome to Duos Technologies' second-quarter 2023 earnings conference call. Joining us for today's call are Duos' CEO, Chuck Ferry; and CFO, Andrew Murphy. Following their remarks, we will open the call for your questions.

午安.歡迎參加 Duos Technologies 2023 年第二季財報電話會議。參加今天電話會議的有 Duos 執行長 Chuck Ferry；和首席財務官安德魯·墨菲。在他們發表講話後，我們將開始電話詢問您的問題。

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.

然後，在我們結束今天的電話會議之前，我將就管理層在本次電話會議期間發表的前瞻性聲明提供必要的警告。現在我想將電話轉給 Duos 的執行長 Chuck Ferry。先生，請繼續。

Welcome, everyone, and thank you for joining us. Earlier today, we issued a press release announcing our financial results for the second quarter 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 10-Q filing with the SEC to better understand some of the details we'll be discussing during our call.

歡迎大家，感謝您加入我們。今天早些時候，我們發布了一份新聞稿，宣布了第二季的財務業績以及其他營運亮點。我們網站的投資者關係部分提供了新聞稿的副本。我鼓勵所有聽眾查看該新聞稿以及我們向 SEC 提交的 10-Q 文件，以更好地了解我們將在電話會議中討論的一些細節。

Now let's get started. About two weeks from now, September 1, I will have served as CEO for Duos Tech for three years. For those that know me, I have successfully led turnarounds with several businesses and military organizations over the past 35 years and instinctively have learned to recognize when an organization has turned the corner and is now ready for prime time. Duos Tech is very much ready for prime time and, looking forward, is in the best position ever with a clear pathway in the next 12 to 24 months to achieve our strategy and achieve financial profitability.

現在讓我們開始吧。大約兩週後，也就是 9 月 1 日，我將擔任 Duos Tech 的執行長三年。對於那些了解我的人來說，在過去35 年裡，我成功地領導了多家企業和軍事組織的扭虧為盈，並且本能地學會了識別組織何時已經渡過難關，現在已經準備好迎接黃金時期。 Duos Tech 已為黃金時段做好了充分準備，展望未來，我們處於有史以來的最佳位置，並在未來 12 至 24 個月內有明確的途徑來實現我們的戰略並實現財務盈利。

There are two key things investors should be watching right now. The first is the Railway Safety Act, which is steadily making its way through Congress. If passed, this bill will call for the FRA to write regulations on the use of wayside detection systems, which includes our technology.

投資者現在應該關注兩件關鍵事情。第一個是《鐵路安全法》，該法案正在國會穩步通過。如果該法案獲得通過，將要求法蘭克福機場制定有關路邊檢測系統（包括我們的技術）使用的法規。

Since the derailment at East Palestine, Ohio, six months ago, our commercial inquiries have skyrocketed. My sense is that regardless of whether this bill passes or not, you also benefit from the renewed focus on safety across the industry. We are currently in discussions with all the Class 1s and many car owners and shippers about how they can benefit from our Railcar Inspection Portal. We have had the opportunity to highlight our technology and benefits to the FRA, Transport Canada, and heads of key labor unions. Everyone who sees the technology understands it is the way of the future.

自從六個月前俄亥俄州東巴勒斯坦出軌事件以來，我們的商業詢問量激增。我的感覺是，無論該法案是否通過，您都會受益於整個行業對安全的重新關注。我們目前正在與所有 1 級車主以及許多車主和托運人討論如何從我們的軌道車檢查入口網站中受益。我們有機會向法蘭克福機場、加拿大交通部和主要工會負責人強調我們的技術和優勢。每個看到這項技術的人都明白這是未來的發展方向。

The second thing investors should watch is the artificial intelligence revolution. AI has been a hot topic for several years, but even more so in the last six months. The rail industry is certainly implementing AI throughout its operations. In this regard, Duos has made significant advances in the development of our AI. We believe our AI portfolio of over 40 use cases that directly correlate to FRA and AAR defects has already prevented many derailments, improved safety, and the system is now being used by at least two of our major railroad customers to support regulatory waivers or waiver applications.

投資人應該關注的第二件事是人工智慧革命。多年來，人工智慧一直是一個熱門話題，但在過去六個月中更是如此。鐵路行業無疑正在其整個運營過程中實施人工智慧。在這方面，Duos 在我們人工智慧的發展方面取得了重大進展。我們相信，我們的人工智慧產品組合包含40 多個與FRA 和AAR 缺陷直接相關的用例，已經防止了許多脫軌事件，提高了安全性，並且該系統目前已被我們至少兩家主要鐵路客戶使用，以支持監管豁免或豁免申請。

There are certainly other pure-play AI or machine-vision companies assisting the rail sector, but none of them provide a turnkey solution like Duos, where we integrate all aspects of hardware, software, IT, and AI, making it the most technologically advanced and reliable machine-vision AI wayside detection system in the field.

當然還有其他純粹的人工智慧或機器視覺公司在協助鐵路行業，但沒有一家能夠提供像Duos 這樣的交鑰匙解決方案，我們整合了硬體、軟體、IT 和人工智慧的各個方面，使其成為技術最先進的解決方案以及可靠的現場機器視覺人工智慧路邊偵測系統。

I want to remind everyone what our strategy is. In the rail industry, we are expanding our current customer base in Class 1, short line, and passenger rail. More importantly, we have initiated our subscription business, closing our first subscription customer earlier this year, and have car owners and shippers that I expect to close in the coming quarters. To accelerate expanding to the subscription business, we are in discussions with our current customers to buy back existing portals.

我想提醒大家我們的策略是什麼。在鐵路產業，我們正在擴大 1 級、短線和客運鐵路目前的客戶群。更重要的是，我們已經啟動了訂閱業務，在今年早些時候關閉了我們的第一個訂閱客戶，並且我預計將在未來幾個季度關閉車主和托運人。為了加速向訂閱業務擴張，我們正在與現有客戶討論回購現有入口網站。

Looking ahead, we have identified the first 10 new subscription portal locations. With this, we have mapped out a plan to grow to a network of 40 to 50 portals, with multiple subscribers each in the coming 18 to 36 months. We have also begun to address the multiple international inquiries that have been coming in. There's particular interest for a portal solution in European passenger rail sector for example. Our business platform and technology are ready to scale more rapidly, if necessary, in response to the Railway Safety Act and AI revolution.

展望未來，我們已經確定了前 10 個新的訂閱入口網站位置。據此，我們制定了一項計劃，在未來 18 至 36 個月內發展到擁有 40 至 50 個門戶的網絡，每個門戶都有多個訂閱者。我們也開始處理收到的多個國際詢問。例如，人們對歐洲客運鐵路行業的門戶解決方案特別感興趣。如有必要，我們的業務平台和技術已準備好更快地擴展，以響應《鐵路安全法》和人工智慧革命。

Lastly, we expect to roll out a technical update of our truck inspection portal in FY 2024 and re-engage in the trucking and intermodal industry where we have previous experience. We have also strengthened our strategic partnerships with Dell Computers and NVIDIA. By integrating technology from Dell, NVIDIA, and other industry leaders with our proprietary know-how, we recently ran a test for acquiring and processing information at the edge. Our results show that we acquired and processed 85 gigabytes of data per second, simulating a train at 125 miles per hour.

最後，我們預計在 2024 財年推出卡車檢查入口網站的技術更新，並重新涉足我們之前擁有經驗的卡車運輸和聯運行業。我們也加強了與戴爾電腦和 NVIDIA 的策略合作夥伴關係。透過將戴爾、NVIDIA 和其他行業領導者的技術與我們的專有技術相結合，我們最近進行了一項在邊緣獲取和處理資訊的測試。我們的結果表明，我們每秒採集並處理 85 GB 的數據，模擬火車時速 125 英里。

To put this in simple terms, 85 gigabytes per second will fill up your personal laptop in approximately four seconds. The test validated our ability to scan a train at high speed and transmit important safety data in less than sixty seconds. For those familiar with wayside detection alerts, sending immediate defect information to a train operator and/or dispatcher is critical to avoiding a derailment.

簡而言之，每秒 85 GB 的資料將在大約四秒內填滿您的個人筆記型電腦。該測試驗證了我們高速掃描列車並在六十秒內傳輸重要安全資料的能力。對於熟悉路邊偵測警報的人來說，立即向列車操作員和/或調度員發送缺陷訊息對於避免脫軌至關重要。

One final comment before turning it over to Andrew for the financials. As you know, Mr. Ed Harris, a 40-year railroad veteran, left our Board of Directors when he became the Chief Operating Officer at Canadian National Railroad some months ago. I am pleased to announce that Mr. Frank Lonegro has recently joined our Board to backfill that director position.

在將財務數據交給安德魯之前，我要發表最後的評論。如你所知，艾德哈里斯先生是一位擁有 40 年鐵路經驗的資深人士，幾個月前，他在成為加拿大國家鐵路公司的首席營運官後離開了我們的董事會。我很高興地宣布 Frank Lonegro 先生最近加入我們的董事會以填補該董事職位。

Frank is a 30-year railroad veteran with leadership roles in finance, law, technology, and operations, having enjoyed a distinguished career at CSX. Frank currently serves as the Chief Financial Officer for Beacon Roofing Supply, a Fortune 500 company. Frank brings decades of leadership experience in key areas of transportation and industrial sectors, including rail operations and safety technology, strategic planning and financial and regulatory stewardship, all of which are vital to our strategy going forward.

Frank 是一位擁有 30 年鐵路經驗的資深人士，在財務、法律、技術和營運方面擔任領導職務，並在 CSX 享有傑出的職業生涯。 Frank 目前擔任財富 500 強公司 Beacon Roofing Supply 的財務長。弗蘭克在交通和工業領域的關鍵領域擁有數十年的領導經驗，包括鐵路運營和安全技術、戰略規劃以及財務和監管管理，所有這些對我們未來的戰略至關重要。

With that, I'll turn it over to Andrew to cover the financials, after which I will address some more of the news on our subscription offering and discuss our risk areas. Andrew.

這樣，我將把它交給安德魯來報告財務狀況，之後我將討論更多有關我們的訂閱產品的新聞並討論我們的風險領域。安德魯。

Thank you, Chuck. I'll now briefly walk through our second-quarter results before expanding on my view of the business. Total revenue for Q2 2023 decreased 51% to $1.77 million compared to $3.62 million in the second quarter of 2022. Total revenue for Q2 2023 represents an aggregate of approximately $870,000 of technology systems revenue and approximately $900,000 in recurring services and consulting revenue.

謝謝你，查克。現在，我將簡要介紹我們的第二季業績，然後再闡述我對業務的看法。 2023 年第二季的總收入下降51%，至177 萬美元，而2022 年第二季為362 萬美元。2023 年第二季的總收入總計約87 萬美元的技術系統收入以及約90 萬美元的經常性服務和諮詢收入。

For the first six months of 2023, total revenue decreased 13% to $4.41 million from $5.06 million in the same period last year. Total revenue for the first six months of 2023 represents an aggregate of approximately $2.7 million of technology systems revenue and approximately $1.72 million in recurring services and consulting revenue.

2023 年前 6 個月，總收入從去年同期的 506 萬美元下降至 441 萬美元，下降 13%。 2023 年前六個月的總收入包括總計約 270 萬美元的技術系統收入和約 172 萬美元的經常性服務和諮詢收入。

The decrease in total revenue for both periods was driven by the certain external site factors of the customer that have delayed delivery of two high-speed rail inspection portals. Growth in the services portion of revenues was driven by the successful completion of two freight RIP, Railcar Inspection Portals, earlier this year, as well as the deployment of additional artificial intelligence detections and represents services and support for those detections.

兩個時期總收入的下降是由於客戶的某些外部場地因素導致兩個高鐵檢查口的交付延遲。服務部分收入的成長得益於今年稍早成功完成的兩個貨運 RIP（軌道車檢查入口網站）以及額外人工智慧檢測的部署，並代表了對這些檢測的服務和支援。

Cost of revenues for Q2 2023 decreased 33% to $1.56 million compared to $2.33 million for Q2 2022, following a similar trend with revenue. The decline in cost of revenues was mainly attributable to the company bearing the initial cost of procurement and allocation material for two high-speed RIPs for a transit customer in Q2 of 2022, without related spend in Q2 of 2023. The marginal increase in cost of revenues from services and consulting was attributed to higher labor costs as well as costs associated with two new portals coming online during early 2023 as opposed to the corresponding period in 2022. For the first six months of 2023, cost of revenues increased 3% to $3.67 million from $3.55 million in the same period last year. The cost of revenues were largely flat on a year-over-year basis, largely due to timing of projects.

與 2022 年第二季的 233 萬美元相比，2023 年第二季的營收成本下降了 33%，至 156 萬美元，營收趨勢類似。收入成本下降的主要原因是公司在 2022 年第二季度承擔了一家公車客戶的兩個高速 RIP 的採購和分配材料的初始成本，而在 2023 年第二季度沒有相關支出。服務和諮詢收入歸因於勞動成本上升，以及與2022 年同期相比，2023 年初上線的兩個新門戶相關的成本。2023 年前6 個月，收入成本增加了3%，達到3.67 美元去年同期為 355 萬美元。收入成本與去年同期基本持平，這主要是由於專案的時間表。

Gross margin for Q2 of 2023 decreased 83% to $212,000 compared to $1.28 million for Q2 of 2022. For the first six months of 2023, gross margin decreased 50% to $749,000 from $1.5 million in the same period last year. The decrease in gross margin was driven by the timing delays of business activity in Q2 of 2023, related to the manufacturing delivery of two high-speed transit focused RIPs for one customer.

2023 年第二季的毛利率為128 萬美元。2023 年前六個月，毛利率從去年同期的150 萬美元下降50%，至749,000 美元。毛利率下降的原因是 2023 年第二季業務活動的時間延遲，這與為一位客戶生產兩個以高速交通為重點的 RIP 的製造交付有關。

Operating expenses for Q2 2023 increased 27% to $3.41 million compared to $2.68 million for Q2 2022. Sales and marketing costs saw only marginal decreases, while research and development expenses increased slightly. The largest increase was observed in general and administrative costs, which can primarily be attributed to the timing of certain payroll-related expenses that took effect in April of 2023, which is a variance with the same period a year ago, largely due to timing.

2023 年第二季的營運費用成長了 27%，達到 341 萬美元，而 2022 年第二季為 268 萬美元。銷售和行銷成本僅略有下降，而研發費用略有增加。增幅最大的是一般和行政成本，這主要是由於某些與工資相關的費用於 2023 年 4 月生效，這與去年同期存在差異，這主要是由於時間安排所致。

Overall, the company continues to focus on maintaining operating expenses while meeting the increasing needs of its customers. For the first six months of 2023, operating expenses increased 16% to $6.1 million from $5.54 million in the same period of last year. The company maintained its cost of sales, marketing and research and development at a consistent level while observing a slight rise in the general and administrative costs.

總體而言，該公司繼續專注於維持營運費用，同時滿足客戶日益增長的需求。 2023 年前 6 個月，營運費用從去年同期的 554 萬美元成長 16% 至 610 萬美元。該公司的銷售、行銷和研發成本保持在穩定水平，但一般和管理成本略有上升。

Net operating loss for Q2 of 2023 totaled $3.2 million compared to net operating loss of $1.39 million for Q2 of 2022. For the first six months of 2023, net operating loss totaled $5.35 million compared to an operating loss of $4.0 million in the same period of last year. The increase in loss from operations was primarily the results of lower revenues recorded in the second quarter as a consequence of project delays previously noted, partially offset by continued increases in services and consulting revenue.

2023 年第二季的淨營運虧損總計320 萬美元，而2022 年第二季的淨營運虧損為139 萬美元。2023 年前6 個月，淨營運虧損總計535 萬美元，而2023 年同期的營運虧損為400 萬美元。去年。營運虧損的增加主要是由於先前提及的專案延誤導致第二季收入下降，但部分被服務和諮詢收入的持續成長所抵消。

Net loss for Q2 2023 totaled $3.04 million, compared to net loss of $1.34 million for Q2 2022. For the first six months of 2023, net loss totaled $5.19 million, compared to a net loss of $3.99 million in the same period last year. The increase in net loss was mostly attributable to the decrease in revenues, as previously noted, along with growing expenses. For the three months ended June 30, 2023, and 2022, net loss per common share was $0.42 and $0.22, respectively. And for the six months ended June 30, 2023, and 2022, net loss per common share was $0.72 and $0.70, respectively.

2023 年第二季的淨虧損總額為304 萬美元，而2022 年第二季的淨虧損為134 萬美元。2023 年前六個月的淨虧損總額為519 萬美元，而去年同期的淨虧損為399 萬美元。如前所述，淨虧損的增加主要是由於收入減少以及支出增加所致。截至2023年6月30日及2022年6月30日的三個月，每股普通股淨虧損分別為0.42美元及0.22美元。截至2023年6月30日及2022年6月30日的六個月，每股普通股淨虧損分別為0.72美元及0.70美元。

Now let's discuss the balance sheet. We ended the quarter with approximately $2.45 million in cash and cash equivalents compared to $1.1 million at December 31, 2022. We had an additional $286,000 in receivables and $1.54 million of inventory, consisting primarily of long lead items for two pending RIP installations. Subsequent to the quarter end, the company raised gross proceeds of $5 million from the sale of Series F convertible preferred stock in early August of 2023, with an investor and an at-the-market offering equivalent to $6.20 per share. As a result of these transactions, the company currently has approximately $6 million in cash and cash equivalents.

現在我們來討論一下資產負債表。本季結束時，我們的現金和現金等價物約為245 萬美元，而截至2022 年12 月31 日，我們的現金和現金等價物為110 萬美元。我們還有286,000 美元的應收帳款和154 萬美元的庫存，主要包括兩個待定RIP 安裝的長期項目。季度末後，該公司透過於 2023 年 8 月初出售 F 系列可轉換優先股籌集了 500 萬美元的總收益，並向投資者發售了相當於每股 6.20 美元的市場產品。由於這些交易，該公司目前擁有約 600 萬美元的現金和現金等價物。

In summary, our cash position is strong, and we are adequately capitalized to execute our current plans. Duos has been fortunate to have the support of our long-term shareholders, as evidenced with our most recent capital infusion, who also see a bright future for Duos in the horizon, and we appreciate their continued support as we implement our subscription platform. I'd now like to provide an update on our financial projections.

總而言之，我們的現金狀況強勁，並且有足夠的資本來執行當前的計劃。 Duos 很幸運地得到了我們長期股東的支持，我們最近的注資證明了這一點，他們也看到了 Duos 光明的未來，我們感謝他們在我們實施訂閱平台時的持續支持。我現在想提供有關我們財務預測的最新資訊。

At the end of the second quarter, our contracts in backlog represented approximately $7.8 million in revenue, of which approximately $3 million to $5 million is expected to be recognized during the remainder of 2023. And the balance of the contract backlog is comprised of multi-year services and software agreements as well as project revenues spanning into fiscal year 2024. Based on these committed contracts and visibility to near-term pending orders that are expected to be executed throughout the course of 2023, as well as the planned expansion of our subscription business model, and other contributing factors, we are reiterating our previously stated revenue expectations for the fiscal year ended December 31, 2023.

截至第二季末，我們的積壓合約代表了約 780 萬美元的收入，其中約 300 萬至 500 萬美元預計將在 2023 年剩餘時間內得到確認。積壓合約的餘額由多個部分組成：年服務和軟體協議以及跨越2024 財年的專案收入。基於這些承諾的合約和對預計將在2023 年整個過程中執行的近期待定訂單的可見性，以及我們計劃的訂閱擴展業務模式和其他影響因素，我們重申先前對截至2023 年12 月31 日的財年的收入預期。

We expect total revenue for 2023 to range between $20 million and $21 million, representing a 33% to 40% increase compared to 2022. We expect the improvement in operating results to be reflected over the course of the full year in 2023. As a result of timing and other factors, we expect revenues in the third quarter to moderately increase compared to the second quarter of 2023 before ramping up significantly in the fourth quarter and into 2024.

我們預計 2023 年的總收入將在 2,000 萬美元至 2,100 萬美元之間，較 2022 年增長 33% 至 40%。我們預計營運績效的改善將在 2023 年全年體現。考慮到時間和其他因素，我們預計第三季的營收將較2023 年第二季適度成長，然後在第四季和2024 年大幅成長。

I'd now like to touch on my outlook for Duos. As our long-term shareholders know, Duos typically transitions between periods of growth, interspersed with pauses as new contracts begin the execution cycle. In fact, in Duos's history, the company typically has operated in a 18-to-24-month cycle, with the quarterly and annual results reflecting the reality of that cycle for CapEx-oriented sales. Duos has studied the value proposition of the RIP product, whereby the data delivered across time provides significant returns to users well beyond the initial CapEx point of sale.

現在我想談談我對 Duo 的展望。正如我們的長期股東所知，Duos 通常會在成長期間之間過渡，並隨著新合約開始執行週期而暫停。事實上，在 Duos 的歷史上，該公司通常以 18 至 24 個月的周期運營，季度和年度業績反映了該週期以資本支出為導向的銷售的實際情況。 Duos 研究了 RIP 產品的價值主張，即跨時間交付的數據為用戶提供遠遠超出初始資本支出點的顯著回報。

To improve the revenue profile of the company and refocus it with the value delivered via the RIP solution, late last year, the company undertook a transition of its core business to a recurring revenue model, and we are now beginning the execution phase of that transition cycle. This is a major positive step for Duos's long-term horizon, but does bring challenges as the company balances demonstrable short-term revenue growth while not mortgaging its future.

為了改善公司的收入狀況並重新專注於透過 RIP 解決方案提供的價值，去年年底，該公司將其核心業務轉變為經常性收入模式，我們現在正在開始該轉變的執行階段循環。這對 Duos 的長期發展來說是一個重大的積極步驟，但也帶來了挑戰，因為該公司在平衡明顯的短期收入成長的同時又不抵押未來。

As we indicated earlier this year, 2023 is a year of transition for Duos. My assessment of our progress is that we are on track to complete the transition by the end of 2023 through a series of commercial successes and the execution of several strategic initiatives underway, but still expect to turn any revenue performance that will provide year-over-year growth.

正如我們今年早些時候指出的，2023 年是 Duo 的過渡年。我對我們進展的評估是，透過一系列商業成功和正在進行的多項戰略舉措的執行，我們預計在 2023 年底之前完成過渡，但仍期望將任何收入業績實現同比增長。

As Chuck mentioned, we remain encouraged by the commercial opportunities that have begun to present themselves though we understand that increased revenues and profitability must remain top of mind. As previously noted, the primary challenge we anticipate is timing of contracts and revenue recognition. And as such, we saw a slowdown in the second quarter due to delays by customers, which we expect to moderately improve in the third quarter before picking up again later this year.

正如查克所提到的，儘管我們知道增加收入和盈利能力仍然是首要考慮因素，但我們仍然對已經開始出現的商業機會感到鼓舞。如前所述，我們預計的主要挑戰是合約的時間表和收入確認。因此，由於客戶的延誤，我們在第二季度看到了放緩，我們預計第三季會略有改善，然後在今年晚些時候再次回升。

We are proactively managing this with contract modifications across current customers as well as other commercial operators. And currently, we do not anticipate a change to our financial guidance for the year. We anticipate in the near term announcing additional commercial and strategic successes, which will contribute to our 2023 results and increase our backlog for 2024 and beyond.

我們正在透過當前客戶以及其他商業運營商的合約修改來積極管理這一問題。目前，我們預計今年的財務指引不會改變。我們預計在短期內將宣布更多的商業和策略成功，這將為我們 2023 年的業績做出貢獻，並增加我們 2024 年及以後的積壓訂單。

This concludes my financial commentary. I'll now pass the call back over to Chuck.

我的財務評論到此結束。我現在將把電話轉回給查克。

Thanks, Andrew. As we have discussed on this call and during previous ones, expanding from a CapEx-only business to a heavier mix of subscription is critical for the long term, but there are short-term pressures on revenue and risks with timing. As such, let's discuss the subscription strategy and progress made to implement it.

謝謝，安德魯。正如我們在本次電話會議和之前的電話會議中討論的那樣，從僅資本支出業務擴展到更廣泛的訂閱組合對於長期而言至關重要，但收入存在短期壓力，並且時機風險也存在。因此，讓我們來討論一下訂閱策略以及實施該策略所取得的進展。

In July, we implemented our first subscription services agreement with a passenger transit operator. The agreement, renewable annually, is initially valued at $300,000 per year and encompasses customer training, installation, and railcar data services across three existing Class 1 portals. This is important because this customer is very thoughtfully planning and testing, while they will use the safety data from our solution to improve their overall operating schema. This is in preparation for when they expect to further expand the use of portals in a combination of CapEx and subscription formats.

7 月，我們與客運業者簽署了第一份訂閱服務協議。該協議每年可續簽，最初價值為每年 30 萬美元，涵蓋三個現有 1 類入口網站的客戶培訓、安裝和軌道車數據服務。這很重要，因為該客戶經過深思熟慮的規劃和測試，同時他們將使用我們解決方案中的安全數據來改善其整體操作模式。這是為他們希望以資本支出和訂閱格式的組合進一步擴大門戶的使用做準備。

We are currently awaiting a decision award with a short-line rail operator to install a subscription portal in the southeastern United States later this year. This multiyear deal will allow for multiple subscribers and includes a partnership where Duos can validate new technology in a live portal. We are also awaiting notice from existing Class 1 customers for additional portals as part of their FY24 capital budgets, which are being formulated at this time.

我們目前正在等待短線鐵路營運商的裁決，以便今年稍後在美國東南部安裝訂閱門戶。這項多年協議將允許多個訂閱者，並包括 Duos 可以在即時入口網站中驗證新技術的合作夥伴關係。我們也正在等待現有 1 類客戶關於額外入口網站的通知，作為其 2024 財年資本預算的一部分，目前正在製定這些預算。

We are currently working with a number of car owners and shippers who have expressed strong interest in subscriptions to assist them in the best ways to incorporate the data into their operations. On the surface, car owners and shippers may seem the same, but in reality, each has its own operational challenges, and we are finding our subscription offering is very flexible in providing what they need now and capable of expanding in the future. As I've mentioned previously, we are in discussions with our current customers to buy back existing portals, and then operate them as a turnkey solution with multiple subscribers on each portal. If successful, this will accelerate our subscription plan.

我們目前正在與許多對訂閱表示濃厚興趣的車主和托運人合作，以幫助他們以最佳方式將數據納入其營運中。從表面上看，車主和托運人可能看起來是一樣的，但實際上，每個人都有自己的營運挑戰，我們發現我們的訂閱服務非常靈活，可以滿足他們現在的需求，並且能夠在未來擴展。正如我之前提到的，我們正在與當前客戶討論回購現有門戶，然後將它們作為交鑰匙解決方案進行運營，每個門戶上都有多個訂閱者。如果成功，這將加速我們的訂閱計劃。

At the same time, we have identified the next 10 subscription portal locations based on a corridor and key interchange point strategy that our veteran railroaders have crafted, and we are in discussions with the owners of those right-of-way locations at this time. While we advance our subscription plan, they may require some near-term decision to invest in subscription portals while foregoing opportunities to sell CapEx portals. The opportunity with the southeastern short-line railroad I mentioned above is an example of that. The decision to forego projects that could be near-term CapEx opportunities that would provide more immediate revenue results versus taking a 5- to 10-year opportunity with far greater revenue potential via a subscription portal is what we're really thinking about.

同時，我們根據經驗豐富的鐵路工人制定的走廊和關鍵換乘點策略確定了接下來的 10 個訂閱門戶位置，目前我們正在與這些通行權位置的所有者進行討論。雖然我們推進訂閱計劃，但他們可能需要做出一些近期決定來投資訂閱門戶，同時放棄出售資本支出門戶的機會。我上面提到的東南短線鐵路的機會就是一個例子。我們真正考慮的是放棄可能是短期資本支出機會的項目，這些項目可以提供更直接的收入結果，而不是透過訂閱入口網站獲得具有更大收入潛力的 5 到 10 年機會。

Ultimately, we know that a business based primarily on recurring revenue with better margins is a pathway to profitability because it allows us to add multiple subscribers at each portal, thus increasing the total revenue that can be achieved from a single installation.

最終，我們知道，主要基於經常性收入和更高利潤的業務是盈利的途徑，因為它允許我們在每個門戶中添加多個訂戶，從而增加單次安裝可實現的總收入。

Other benefits of the expansion into subscription include allowing Duos to make technological updates at our pace, which is often faster than our conversion cycle under the CapEx format. Those updates will benefit not just one customer at their own portal, but everyone who has access to a subscription, allowing Duos to make the investment to build out a portal network so that the initial CapEx outlay can be eliminated as a challenging cost hurdle for the rail operators, car owners, or shippers. Building a technology road map for our customers, allowing them to access our full portfolio, thereby allowing the greatest number of customers to improve the safety of their operations and the maintenance of their cars.

擴展到訂閱的其他好處包括允許 Duos 按照我們的節奏進行技術更新，這通常比我們在資本支出格式下的轉換週期更快。這些更新不僅使自己門戶網站上的一個客戶受益，而且使每個有權訪問訂閱的客戶受益，從而使 Duos 能夠投資構建門戶網絡，從而消除初始資本支出這一具有挑戰性的成本障礙。鐵路運營商、車主或託運人。為我們的客戶制定技術路線圖，使他們能夠存取我們的完整產品組合，從而使最大數量的客戶能夠提高其營運和汽車維護的安全性。

So let's discuss risks. As Andrew mentioned earlier, Duos and its current CapEx-weighted revenues format makes quarter-to-quarter consistency challenging. As an example, we have experienced project delays beyond our control at our largest passenger customer. However, the good news is that this is offset by contract modifications that have added 40% of contract value, which is worth more than $4 million of additional revenue for this project. Rather, you should look at us over a longer period and consider the potential upside given a successful transition to our subscription model.

那我們來討論一下風險。正如安德魯之前提到的，Duos 及其當前的資本支出加權收入格式使得季度與季度的一致性具有挑戰性。舉例來說，我們最大的客運客戶經歷了超出我們控制範圍的專案延誤。然而，好消息是，這被合約修改所抵消，合約價值增加了 40%，為該項目帶來了超過 400 萬美元的額外收入。相反，您應該以更長的時期來看待我們，並考慮成功過渡到我們的訂閱模式後的潛在優勢。

Near term, we'll continue to thoughtfully take risks on pursuing subscription opportunities versus CapEx. However, we will have a blend of both for at least the next several years. I'm certainly no stranger to risk management so you can bet we are proactively working on our plans to mitigate this timing risk. And so I am reaffirming our guidance for FY23 at this time.

短期內，我們將繼續深思熟慮地冒險尋求認購機會而不是資本支出。然而，至少在接下來的幾年裡，我們將把兩者結合起來。我對風險管理當然並不陌生，所以你可以打賭我們正在積極制定計劃以減輕這種時間風險。因此，我此時重申我們對 2023 財年的指導。

In closing, between pending government legislation, skyrocketing interest in AI, and the commercial demand across the rail industry we're seeing as a result, we believe we are entering a unique inflection point with the right technology at the right time. Duos remains in its strongest position ever, and we look forward to capitalizing on the opportunities ahead.

最後，在懸而未決的政府立法、對人工智慧的興趣飆升以及我們所看到的整個鐵路行業的商業需求之間，我們相信我們正在進入一個獨特的拐點，在正確的時間使用正確的技術。 Duos 仍處於有史以來最強勁的地位，我們期待著利用未來的機會。

And with that, we're ready to open the call for your questions. So operator, if you would please provide the appropriate instructions.

至此，我們準備好開始詢問您的問題了。因此，運營商，如果您願意，請提供適當的說明。

(Operator Instructions) Mike Latimore, Northland Capital.

（操作員說明）Mike Latimore，Northland Capital。

Hi. This is Adithya on behalf of Mike Latimore. Could you give some color on what would be the revenue mix between services and systems revenue for this year?

你好。我是阿迪蒂亞 (Adithya)，代表麥克拉蒂摩爾 (Mike Latimore)。能否介紹一下今年服務和系統收入之間的收入組合？

Yes, this is Chuck. Thanks for the question. I'm going to start this out. I think one of the -- why don't we start with this question, this is kind of how do we feel about the rest of the year. And I'll let Andrew kind of talk about what that mix looks like.

是的，這是查克。謝謝你的提問。我要開始了。我認為其中之一 - 為什麼我們不從這個問題開始，這就是我們對今年剩餘時間的感受。我會讓安德魯談談這種組合是什麼樣的。

I would say, look, basically, we have a plan to meet our 2023 guidance through a mix of existing contract mods and installation of at least two more portals by the end of the year. And I would note that we already have about $1.5 million worth of the long lead items on hand for these two portals. And we're in active discussions with several customers who want them before year end.

我想說，基本上，我們計劃透過現有合約模組的組合以及在年底前安裝至少兩個入口網站來滿足 2023 年的指導方針。我要指出的是，我們已經為這兩個入口網站準備了價值約 150 萬美元的長期產品。我們正在與一些希望在年底前獲得這些產品的客戶進行積極討論。

And I'll turn it over to Andrew to maybe talk about what that mix looks like.

我會把它交給安德魯，也許他會討論這個組合是什麼樣的。

Sure. I think to Chuck's point, we will still have a very heavy CapEx focus in the second half of the year. However, right now, we are undertaking several strategic initiatives that will allow Duos to very quickly phase into the subscription program. And so I think while it may not be a significant or meaningful amount of overall revenue by the end of this year, I expect we're going to establish a large recurring base for future years for our subscription program.

當然。我認為，根據查克的觀點，我們在下半年仍將專注於資本支出。然而，目前我們正在採取多項策略舉措，使 Duos 能夠非常快速地進入訂閱計劃。因此，我認為，雖然到今年年底，這可能不會成為總收入的重要或有意義的數額，但我預計我們將為未來幾年的訂閱計劃建立一個龐大的經常性基礎。

So I think in 2022, we had an 80%, 20% split between CapEx and recurring revenues. We anticipate that that will grow, especially in the latter half of 2023, but we expect some of those results to bear more fruit going into 2024.

因此，我認為到 2022 年，我們的資本支出和經常性收入將分別分配 80% 和 20%。我們預計這一數字將會成長，尤其是在 2023 年下半年，但我們預計其中一些成果將在 2024 年結出更多成果。

All right. And could you also give some more color on the total cash less the buyback?

好的。您能否對減去回購的總現金進行更多說明？

Yes, we'll talk about it in concept just because we're in discussions at this point. And certainly, those are sensitive, and we will not talk about the customers themselves. But basically, the concept is that -- look, we have customers that have purchased existing portals, and, obviously, we provide services and maintenance and software licensing for those on a recurring basis. The concept is that they would return ownership of those portals to us. We would then own and operate and basically run them as a turnkey solution to them. Part of that would include providing technology updates for them, in some cases, introducing new subsystems that are being developed right now, and basically then being able to more rapidly respond to those sorts of things.

是的，我們將在概念上討論它，因為我們目前正在討論。當然，這些都是敏感的，我們不會談論客戶本身。但基本上，這個概念是——看，我們的客戶已經購買了現有的入口網站，顯然，我們定期為這些客戶提供服務、維護和軟體許可。這個概念是他們會將這些門戶的所有權歸還給我們。然後我們將擁有並運營它們，基本上將它們作為交鑰匙解決方案運行。其中一部分包括為他們提供技術更新，在某些情況下，引入目前正在開發的新子系統，然後基本上能夠更快地回應此類事情。

The concept, though, is that we would basically provide services for that base customer, if you will, with services in kind for the next few years to basically pay down the buyback price. So this has been very favorably received, and we're in active discussions, and I'm hopeful to be able to announce maybe in the next few months the success with that, which will accelerate our subscription efforts.

不過，我們的概念是，如果願意的話，我們基本上會為該基礎客戶提供服務，並在未來幾年內提​​供實體服務，以基本上支付回購價格。因此，這受到了非常熱烈的歡迎，我們正在積極討論，我希望能夠在未來幾個月內宣布這一成功，這將加速我們的訂閱工作。

All right. Thank you.

好的。謝謝。

(Operator Instructions) Ed Woo, Ascendiant Capital Markets.

（操作員指令）Ed Woo，Ascendiant Capital Markets。

Yes, thank you very much for taking my question. My question is on a very general topic, AI. You guys have been obviously using it in your technology for a long time. It's getting a lot of buzz, but can you just quickly talk about how you guys are able to advance it and make your product even better and so that everybody kind of knows your involvement with it? Thank you.

是的，非常感謝您提出我的問題。我的問題是關於一個非常普遍的主題：人工智慧。顯然你們已經在你們的技術中使用它很久了。它引起了很多關注，但你能快速談談你們如何能夠推進它並使你的產品變得更好，以便每個人都知道你參與其中嗎？謝謝。

Yes. So we've talked to both of this, format and others, where, currently right now, in the machine-vision wayside detection area, Duos is the only company that does -- that performs basically all of the necessary tasks to produce good AI. And by that, I mean, we -- our solution, we control the proprietary aspects of all the hardware, software, IT, and artificial intelligence.

是的。因此，我們已經與這兩家公司、格式公司和其他公司進行了交談，目前在機器視覺路邊檢測領域，Duos 是唯一一家這樣做的公司——它基本上執行了產生良好人工智能的所有必要任務。 。我的意思是，我們——我們的解決方案，我們控制所有硬體、軟體、IT 和人工智慧的專有方面。

And there are other -- there are some Class 1 customers and others out there that are using some other machine-vision technology from competitors, but they are having to use third-party AI providers. So what they're having to do is they're basically -- they're not in control of all aspects of that AI. This is very, very important because in this machine-vision AI for moving railcars, any small, slight changes that you make in the hardware, the software, the IT, the AI, will offset and cause the AI to not perform very well. And this is feedback we're getting from some of the Class 1 operators that use our competitors' equipment.

還有其他的——有一些 1 類客戶和其他客戶正在使用競爭對手的其他機器視覺技術，但他們不得不使用第三方人工智慧提供者。所以他們必須做的是，他們基本上無法控制人工智慧的所有方面。這是非常非常重要的，因為在用於移動軌道車的機器視覺人工智慧中，你對硬體、軟體、IT、人工智慧所做的任何微小的改變都會抵消並導致人工智慧表現不佳。這是我們從一些使用我們競爭對手設備的 1 級運營商那裡得到的反饋。

So the big difference in advances for us is that we self-perform it all in-house. We have a very experienced team that also includes mechanical car inspectors in our AI development team. It's not a very large team, but it's a very talented team. And the other key aspect is our current customers participate and provide excellent information and data points for us to make sure that the AI that we develop is meaningful, it's focused on things that cause derailments, and it's directly correlated to FRA- and AAR-mandated inspection points. I hope that answers the question.

因此，對我們來說，進步的最大差異在於我們在內部自行執行這一切。我們擁有一支經驗豐富的團隊，我們的人工智慧開發團隊還包括機械汽車檢查員。這不是一個非常大的團隊，但卻是一個非常有才華的團隊。另一個關鍵方面是我們目前的客戶參與並為我們提供優秀的資訊和數據點，以確保我們開發的人工智慧是有意義的，它專注於導致脫軌的事情，並且與 FRA 和 AAR 的規定直接相關檢查點。我希望這能回答這個問題。

Yes, thank you very much, and I wish you guys good luck. Thank you.

是的，非常感謝你們，祝你們好運。謝謝。

I appreciate. Thank you. And we'll wait for the next question. Go ahead.

我很欣賞。謝謝。我們將等待下一個問題。前進。

Management will now take select listeners' submitted questions.

管理層現在將接受選定聽眾提交的問題。

Yes, thank you. So we've had a couple of questions kind of come in over the last week or so. One of the questions that we have right now is -- the question is, do you expect the recent derailments to drive more sales in the next 12 months?

是的，謝謝。上週左右我們收到了一些問題。我們現在面臨的問題之一是——您預計最近的脫軌會在未來 12 個月內推動更多銷售嗎？

Look, the rail industry, Duos Tech included and all of our current customers, safety is absolutely paramount and first and foremost and front and center for the entire industry. I would say that since the East Palestine events, it has certainly put a lot more focus and emphasis on rail safety. There is considerable efforts in Congress right now to pass the bill. Congress of course is in recess right now, but we have been told, when they come out of recess, certainly the Senate will hear the bill on the floor during the month of September. But I think even regardless of that, you're going to see a drive to adopt more technology like ours on a go-forward basis.

看，在鐵路行業，包括 Duos Tech 以及我們所有當前的客戶，安全絕對是最重要的，也是整個行業的首要任務和中心。我想說，自從東巴勒斯坦事件以來，它肯定更加關注和強調鐵路安全。目前國會正在做出巨大努力來通過該法案。當然，國會現在正在休會，但我們被告知，當他們休會後，參議院肯定會在 9 月聽取該法案。但我認為，即使如此，您仍會看到不斷採用更多像我們這樣的技術的動力。

I think now that the FRA and Transport Canada as well as some of the labor unions have gotten more familiar with our technology and others like it, I think they're starting to get more comfortable with it and the pace is going to pick up regardless. So we never want to see more derailments, but I think it's certainly going to be the focus on a go-forward basis.

我認為現在法蘭克福機場和加拿大交通部以及一些工會已經更加熟悉我們的技術和其他類似技術，我認為他們開始對此感到更加適應，無論如何，步伐都會加快。所以我們不想看到更多的脫軌，但我認為這肯定會成為未來的焦點。

Another question we have here is, and I think I'll let Andrew take this, what does success look like for the business here over the next couple of quarters?

我們在這裡遇到的另一個問題是，我想我會讓安德魯來回答這個問題，在接下來的幾個季度裡，這裡的業務會取得怎樣的成功？

Yes, that's a great question. I think success for us looks like a combination of CapEx sales, as we mentioned in the earnings call, which will continue over the next several years, continue to be a core component of our business, but expansion of our offerings with our existing customers, really a continued focus on our recurring revenues. While CapEx is certainly valuable to us and helps in terms of the near-term revenue recognition and will continue to be a part of that offering, the company really wants to continue to focus on that recurring revenue with a target to grow recurring revenues to 50%-plus of annual revenue or more.

是的，這是一個很好的問題。我認為我們的成功看起來像是資本支出銷售的結合，正如我們在財報電話會議中提到的那樣，這將在未來幾年繼續下去，繼續成為我們業務的核心組成部分，但擴大我們與現有客戶的產品，真正持續關注我們的經常性收入。雖然資本支出對我們來說當然很有價值，並且有助於近期收入確認，並將繼續成為該產品的一部分，但該公司確實希望繼續專注於經常性收入，目標是將經常性收入增長到 50年收入%以上或以上。

While this won't happen overnight, we do believe we are laying the groundwork with strategic initiatives in 2023. As we talked about earlier, in 2022, our recurring revenues without subscription customers was approximately 20% of our total revenue, and we believe we can grow that figure out significantly. Coupled with that, we will also be able to achieve a sustainable breakeven on both cash flow and net profit as we phase into a subscription model.

雖然這不會一蹴而就，但我們確實相信我們正在為2023 年的策略舉措奠定基礎。正如我們之前談到的，2022 年，我們不考慮訂閱客戶的經常性收入約占我們總收入的20%，我們相信我們可以顯著增加這個數字。除此之外，隨著我們進入訂閱模式，我們還將能夠實現現金流和淨利潤的可持續收支平衡。

Yes, We'll do one more here and then we'll turn it back over if there's any more questions. But this question came in again asking for a bit of an update about the proposed legislation that's making its way through Congress, the Railway Safety Act, and what's the likelihood of the FRA mandating automated inspections.

是的，我們將在這裡再做一份，如果還有任何問題，我們將把它轉回來。但這個問題再次出現，要求了解國會正在審議的擬議立法、《鐵路安全法》以及 FRA 強制執行自動檢查的可能性有多高。

I just want to remind our investors and those who will read the transcript afterwards, at this moment right now, the FRA does not currently have any regulatory authority over the use and deployment of wayside detection devices. That is largely left in the hands of the Class 1 railroads and other rail operators to employ those systems.

我只是想提醒我們的投資者和那些隨後閱讀文字記錄的人，目前，法蘭克福機場對路邊檢測設備的使用和部署沒有任何監管機構。這主要由一級鐵路和其他鐵路營運商負責使用這些系統。

So if this bill will pass, there is a section in there that's very specific that the FRA, more importantly the Department of Transportation Secretary, will be required within one year to write a regulation that will write a set of regulations and standards around the use of wayside detection devices. And it's our understanding that the wayside detection devices will not just be -- it will be heat detection devices, impact detection devices, and also machine vision and camera detection devices.

因此，如果該法案獲得通過，其中一個部分非常具體，即聯邦航空局，更重要的是交通部部長，將被要求在一年內製定一項法規，圍繞使用制定一套法規和標準路邊檢測裝置。據我們了解，路邊檢測設備不僅是熱檢測設備、碰撞檢測設備，還有機器視覺和攝影機偵測設備。

So again, this is kind of a big deal if it does pass. But again, I think the industry is already headed this direction anyway. And so regardless of the bill, our strategy remains solid regardless whether it passes or not.

再說一次，如果它真的通過了，那就是一件大事了。但我再次強調，無論如何，這個產業已經朝著這個方向發展了。因此，無論該法案如何，無論它是否通過，我們的策略仍然是堅定的。

So operator, I'll turn it over to you. If we have more questions, we'll take them. But if not, we'll turn it back over to you for closing statements.

那麼接線員，我就把它交給你了。如果我們還有更多問題，我們會回答。但如果沒有，我們會將其轉回給您以供結案陳詞。

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.

至此，我們的問答環節就結束了。現在我想將電話轉回給費裡先生，讓他作結束語。

Thank you, operator, and thank you, everybody, for joining. Again, I also very much appreciate our shareholders, our current shareholders, especially our long-term shareholders, who have been very, very supportive of us and understand the potential that we have and what this new model means for us in terms of value.

謝謝運營商，也謝謝大家的加入。再次，我也非常感謝我們的股東，我們的現有股東，特別是我們的長期股東，他們一直非常非常支持我們，並且了解我們的潛力以及這種新模式對我們的價值意味著什麼。

So thank you, everybody, for attending, and I'll turn it back over to our moderator to complete the call.

謝謝大家參加，我會將其轉交給我們的主持人來完成通話。

Before we conclude today's call, I'd like to provide Duos' Safe Harbor statement that includes important cautions regarding forward-looking statements made during this call. This earnings call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking terminologies such as believes, expects, may, will, should, anticipates, plans, and their opposites or similar expressions are intended to identify forward-looking statements.

在我們結束今天的電話會議之前，我想提供 Duos 的安全港聲明，其中包括有關本次電話會議期間所做前瞻性陳述的重要警告。本次財報電話會議包含 1995 年《私人證券訴訟改革法案》含義內的前瞻性陳述。諸如相信、預期、可能、將、應該、預計、計劃及其反義詞或類似表達等前瞻性術語旨在識別前瞻性陳述。

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 statements are based, and could cause Duos Technologies Group actual results to differ materially from those anticipated by the forward-looking statements.

我們提醒您，這些陳述並不是對未來業績或事件的保證，並且受到許多不確定性、風險和其他影響，其中許多因素超出了我們的控制範圍，這可能會影響陳述和預測的準確性。前瞻性陳述是有依據的，可能導致Duos Technologies Group 的實際結果與前瞻性陳述的預期產生重大差異。

These risks and uncertainties include, but are not limited to, those described in Item 1A and 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.

這些風險和不確定性包括但不限於第 1A 項和 Duos 表格 10-K 年度報告中所述的風險和不確定性（透過引用明確納入本文）以及 Duos 向 SEC 提交的文件中可能定期描述的其他因素。

Thank you for joining us today for Duos Technologies Group second-quarter 2023 conference call. You may now disconnect.

感謝您今天參加 Duos Technologies Group 2023 年第二季電話會議。您現在可以斷開連線。