Duos Technologies Group Reports Third Quarter and Nine Month 2021 Results

JACKSONVILLE, FL / ACCESSWIRE / November 15, 2021 / Duos Technologies Group, Inc. ("Duos" or the "Company") (Nasdaq:DUOT), a provider of vision based analytical technology solutions, reported financial results for the third quarter and nine months ended September 30, 2021.

Third Quarter 2021 and Recent Operational Highlights

• Received "Notice to Proceed" on a significant upgrade for two Railcar Inspection Portals (rip®) with an existing Class I rail operator customer. This upgrade is being provided in connection with a larger overall contract, which includes complete North American service, support, maintenance, and spare components sourcing for the seven (7) portals currently in operation for the customer. The services contract will be recognized as recurring revenue through 2022.
• Received an order for an Automated Pantograph Inspection System, or apis®, to be installed at a transit system based in Canada.
• Elected new independent board member Craig Nixon at the Company's Annual Shareholder Meeting in July. A retired high-ranking military officer with extensive, recent experience in technology consulting with several prominent Silicon Valley companies, Nixon is ideally suited to help lead Duos towards excellence in operations and strategic planning.
• In November, Duos will be consolidating operations across the company into a single location. In addition to creating a more collaborative working environment, the new facility will have sufficient space for the Company's anticipated expansion over the next 12 months.
• Awarded Patent No. 11172107 from the USPTO for "Optical Path Alignment Guide." The new patent is in concert with the Company's strategic focus on visual analysis technology for moving objects.
• Continued marketing partnership with NVIDIA, which featured Duos in a recent Blog published on their corporate website: Duos Technologies Uses AI-Powered Inspection to Help Railway Operators Stay on Track.

Third Quarter 2021 Financial Results

It should be noted that the following Financial Results represent the consolidation of the Company with its subsidiaries Duos Technologies, Inc. and truevue360™.

Total revenue for the third quarter increased 36% to $1.74 million compared to $1.28 million in the same period last year. This was the aggregate of about $1.15 million for technology systems and $587,000 in recurring services and consulting revenue. The increase in total revenue was the result of progress in new installations in the technology systems portion of the business, following the receipt of an anticipated "notice to proceed" on a significant upgrade to two key installations. Some of that revenue was recognized during the quarter resulting in a 58% increase in technology systems revenues in comparison to the equivalent quarter a year ago. However, certain installations may produce revenues towards the end of the year, some of which may ultimately be recorded in 2022 as a result of supply chain delays.

Cost of revenues increased 83% to $2.80 million compared to $1.53 million in the same period last year. Cost of revenues on technology systems increased during the period, compared to the equivalent period in 2020, by a greater amount than the increase in revenues. The increase is primarily due to the additional work required to resolve previously identified quality issues, most of which are now resolved, as well as an increase in cost related to the deployment of an undercarriage technology. The Company expects costs to be lower going forward as a percentage of the overall system price. Cost of revenues decreased for services and consulting, which comprises equipment, labor and overhead necessary to support the implementation of new systems for support and maintenance of existing systems. The decrease was due to lower costs in servicing clients as well as the elimination of certain costs related to the IT Asset Management business that were recorded in the equivalent period.

Gross margin totaled $(1.06) million compared to $(247,000) in the same period last year. The decrease in gross margin was driven by higher costs as the result of additional work being necessary on certain of the Company's installations to resolve newly identified quality issues which are now mostly resolved as well as higher costs of materials due to supply chain disruptions. There was also a significant increase in cost related to the new deployment of an undercarriage technology. These higher costs are anticipated to be offset in the fourth quarter and beyond by higher revenues with the net result being a move to a positive gross margin as the business expands. The Company anticipates an improvement in the overall gross margin for the full year reporting in 2021, with much of the improvement coming in the fourth quarter.

Operating expenses decreased 44% to $1.38 million from $2.46 million in the same period last year. The decrease in operating expenses was primarily driven by a substantial decrease in overall administration costs, offset by increases in sales and marketing as well as research and development.

Net loss totaled $2.45 million compared to net loss of $2.71 million in the same period last year. The improvement in net loss was primarily attributable to the increase in revenue noted previously.

Cash and cash equivalents at quarter-end totaled $2.26 million, compared to $3.97 million at December 31, 2020.

Nine Month 2021 Financial Results

Total revenue increased 7% to $4.54 million from $4.26 million in the same period last year. This was the aggregate of about $2.74 million for technology systems and $1.8 million in recurring services revenue. The increase in total revenue was driven by new revenues being recorded after delays in receiving "notices to proceed" for anticipated new contracts earlier in the year pushed delivery dates into the second half of this year. There was a slight decrease in revenue from technology systems which was more than offset by the increase in services and consulting revenue. The Company is focusing on increasing its business from recurring revenue services and the increase is as the result of new contracts for existing and new systems. This trend is expected to continue into 2022.

Cost of revenues increased 55% to $7.72 million from $4.97 million in the same period last year. The increase was driven by increased costs of deployment related to certain installations where new technologies were being deployed for the first time. Costs for services and consulting increased at a proportionate, albeit slightly slower rate, than the increase in revenues, and this trend is expected to continue as certain economies of scale become evident late in the year and continue into 2022. Overhead more than doubled for the period reflecting higher costs for staffing current and anticipated projects although this rate of increase is expected to flatten in the fourth quarter of 2021 and beyond.

Gross margin decreased to $(3.18) million from $(715,000) in the same period last year. The decrease in gross margin was the result higher costs and certain delays related to supply chain issues. In addition, there were costs involving the Company's revamping of its operations to support an anticipated increase in the number of new systems going forward. The Company anticipates an improvement in the overall gross margin for the full year reporting in 2021, with much of those improvements expected in the fourth quarter.

Operating expenses decreased 27% to $4.04 million from $5.51 million in the same period last year. The decrease in operating expenses can be attributed to decreases in administration costs, offset by an increase in sales and marketing and research and development.

Net loss totaled $5.81 million compared to a net loss of $6.32 million in the same period last year. The improvement in net loss was primarily attributable to the impact of the Cares Act PPP loan forgiveness and the effect of lower operating expenses during the 2021 nine-month period compared to the prior year.

Financial Outlook

For the fiscal year ending December 31, 2021, the Company expects total revenue of approximately $8.0 million to $9.0 million. The Company's guidance is based on contracts in backlog and near-term pending orders that are already performing or were scheduled to be executed by the fourth quarter of 2021. Management also expects its operations to achieve close to breakeven for the last quarter of 2021 with an expected improved cash liquidity position by year end based on anticipated orders. Although uncertainties continue in the macro-economic climate, management believes that 2022 will yield a much stronger financial performance for revenue and be profitable for the fiscal year.

Management Commentary

"This quarter's return to growth was an encouraging step in the right direction while we position ourselves to meet an increasing pipeline of large contract opportunities in the coming months," said Duos Chief Executive Officer Chuck Ferry. "During the third quarter, we continued to improve our internal processes, strengthen our current solutions and invest in our technology capabilities, all of which have our company in its strongest-ever position operationally. More specifically, we've made meaningful improvements to how we execute our manufacturing, including instituting more rigorous quality controls and in-house testing prior to equipment being shipped. We've also upgraded our overall product portfolio and devoted additional resources to our artificial intelligence division, including the hiring of additional internal staff and subject matter experts. To reliably execute on the increasing order flow, we will be deploying more working capital toward pre-procuring inventory to mitigate potential supply shortages. While our vision for a self-sustaining, recurring revenue-first business has yet to materialize, we remain confident in our ability to meet our near-term financial targets. Longer term, we believe the initial progress we're seeing today supports our approach and underlies a greater opportunity ahead."

Conference Call

The Company's management will host a conference call today, Monday, November 15, 2021, at 4:30 p.m. Eastern time (1:30 p.m. Pacific time) to discuss these results, followed by a question and answer period.

Date: Monday, November 15, 2021

Time: 4:30 p.m. Eastern time (1:30 p.m. Pacific time)

U.S. dial-in: 877-407-3088

International dial-in: 201-389-0927

Confirmation: 13724722

Please call the conference telephone number 5-10 minutes prior to the start time of the conference call. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Gateway Investor Relations at 949-574-3860.

The conference call will be broadcasted live via telephone and available for online replay via the investor section of the Company's website here.

About Duos Technologies Group, Inc.

Duos Technologies Group, Inc. (NASDAQ:DUOT), based in Jacksonville, Florida, through its wholly owned subsidiary, Duos Technologies, Inc., designs, develops, deploys and operates intelligent vision based technology solutions supporting rail, logistics, intermodal and Government customers that streamline operations, improve safety and reduce costs. The Company provides cutting edge solutions that automate the mechanical and security inspection of fast moving trains, trucks and automobiles through a broad range of proprietary hardware, software, information technology and artificial intelligence. For more information, visit www.duostech.com.

Forward-Looking Statements

This news release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding, among other things our plans, strategies and prospects -- both business and financial. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Many of the forward-looking statements contained in this news release may be identified by the use of forward-looking words such as "believe," "expect," "anticipate," "should," "planned," "will," "may," "intend," "estimated," and "potential," among others. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this news release include market conditions and those set forth in reports or documents that we file from time to time with the United States Securities and Exchange Commission. We do not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law. All forward-looking statements attributable to Duos Technologies Group, Inc. or a person acting on its behalf are expressly qualified in their entirety by this cautionary language.

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SOURCE: Duos Technologies Group, Inc.

Released November 15, 2021