Duos: “We Ended the Year on a High Note”Written by Andrew Corselli
Duos Technologies Group, Inc. reported financial results for the fourth quarter and full year ended Dec. 31, 2019. In doing so it noted that its total revenue increased 125% to $5.75 million, compared to $2.56 million in the same quarterly period, and its gross profit increased 176% to $3.15 million (55% of total revenue) compared to $1.14 million (45% of total revenue) in the same quarterly period last year.
This significant increase in total revenue was partially the result of timing shifts from previous quarters and was also driven by the current strength of the projects portion of the Duos’ business with additional contributions from maintenance and technical support as well as its IT asset management (ITAM) division.
The increase in gross profit was the result of the increase in project revenues previously mentioned and the positive effect of continuing revenue increases from new projects.
Other 4Q19 and recent operational highlights:
· Successfully listed onto the Nasdaq Capital Market and began trading under the ticker symbol “DUOT” effective Feb. 13, 2020. In connection with the listing, Duos management rang the ceremonial Nasdaq Opening Bell on Feb. 21, 2020.
· Also in connection with being listed on the Nasdaq, completed underwritten public offering of 1,542,188 shares of common stock at an offering price of $6 per share, resulting in total gross proceeds of $9.25 million, which includes the exercise of its over-allotment option prior to deducting underwriting discounts, commissions and offering expenses payable by Duos.
· Implemented its first full-scale Rail Inspection Portal (rip®) in record time for CSX Transportation, Inc. Substantially completed another rip® with a different customer, which is scheduled for final acceptance at a site in Mexico within the next 60 days.
· Completed engineering and the launch of a beta test installation of a state-of-the-art, 3D version of Duos’ pantograph inspection system (apis®), at a transit rail location in Chicago.
· Completed installation of an industrial portal for tank car inspection in Michigan.
· Completed next-generation centraco® platform designed to provide additional security and logistics for a banking group.
· Successfully transitioned its artificial intelligence (AI) models to its new truevue360 platform.
Duos’ other 4Q19 results can be found here, including:
Operating expenses increased 28% to $2.52 million from $1.98 million in the same quarterly period last year, reflecting the increase in resources related to the increase in revenues for the period as well as additional resources related to the new truevue360™ AI subsidiary. The increase in operating expenses was mainly driven by selling and marketing expenses, which increased in line with Duos’ investment in resources to grow the business.
Net income totaled $592,000, an increase from net loss of $836,000 in the same quarter a year ago. The improvement in net income was primarily attributable to the increase in project revenues previously mentioned more than covering a planned increase in operating expenses recorded in the same period.
“We ended the year on a high note, with a record performance in the fourth quarter driven by strong performances in each of our operating divisions,” said Duos Chairman and CEO Gianni Arcaini. “Most notably, we closed agreements and completed a series of major project implementations toward the end of 2019, supporting our decision to allocate greater resources earlier in the year to meet this expected increase in demand. In Q4 we also achieved profitability thanks to the substantial gross margin increases we generated in the period. We expect to incrementally improve our fundamentals on an annual go-forward basis as we benefit from economies of scale through larger contracts as well as steady increases in recurring revenues from our maintenance and technical support division and the anticipated growth from our truevue360™ AI subsidiary.”
Duos’ FY19 financial results can be found here, including:
Total revenue increased 13% to $13.64 million compared to $12.05 million in the same period last year. The steady increase in total revenue was driven by the current strength of the projects portion of Duos’ business with additional contributions from maintenance and technical support as well as its ITAM division. The maintenance and technical support revenues were driven by successful completion of projects and represent services and technical support for those installations. The expectation is that revenues from this area will continue to grow based on the success of multiple installations in 2019.
Gross profit increased 25% to $6.48 million (48% of total revenue) compared to $5.2 million (43% of total revenue) in the same period last year. The increase in gross profit was the result of the increase in project revenues previously mentioned and the positive effect of continuing revenue increases from new projects. Duos anticipates overall gross margins to continue to improve in the coming year driven by higher sales from both existing and new customers and certain “economies of scale” from larger projects. The increase in revenues will positively impact recurring revenue from maintenance and technical support with a resulting increase in gross margin.
Operating expenses increased 31% to $8.89 million compared to $6.77 million in the same period last year, reflecting the increase in resources related to the increase in revenues for the period as well as additional resources related to the new truevue360™ AI subsidiary. Selling and marketing expenses increased inline with Duos’ investment in resources to grow the business. Duos also increased human resources head count for the development of the new truevue360™ AI platform as well as operational costs for the new laboratory for training the machine learning systems. This rate of increase is expected to slow in 2020. Other general and administrative costs were higher as the result of additional business and non-project related travel.
Net loss totaled $2.47 million, an increase from net loss of $1.58 million in the same period a year ago. The increase in net loss was primarily attributable to an increase in expenses related to truevue360™, including software development contract staff in Europe and machine learning trainers at the Florida R&D center.
Duos has previously provided revenue guidance of $20 million for 2020, which would represent an approximate 47% increase over the $13.6 million recorded in 2019. Duos’ guidance is based on contracts in backlog and near-term pending orders that are already performing or scheduled to be executed throughout the course of 2020.
The majority of Duos’ customers, and by proxy Duos, have been identified as essential to continued infrastructure viability. Consequently, Duos’ workforce is considered “essential” under the rule. Accordingly, while there is not a tangible reason to reduce revenue guidance for the year at this point, Duos cautions that because of the substantially increased global uncertainty, particularly due to the COVID-19 pandemic, revenues in the first half of the year could be substantially below those of the comparable period in 2019 due to potential delays in project execution resulting from the restrictive travel environment currently in place.
“We began the new year with significant operating and sales momentum as well as an elevated company profile,” said Arcaini. “In February we successfully raised over $9 million to support our future growth needs for the foreseeable future and also uplisted onto the Nasdaq Capital Market. With our new listing on a national exchange, we are eager to capitalize on the opportunity to more widely spread the Duos story to a new, broader audience. At the same time, with the current global economic crisis related to COVID-19, we anticipate an intra-year impact, which would result in possible shifting of revenues from the first half into the latter quarters of 2020. Fortunately, our supply chain was not affected, and our high-value IP revenue drivers are all controlled by the Company. We have also maintained consistent communications with our clients and put a plan in place to ensure ongoing business continuity. While we still expect to generate robust double-digit growth in 2020, we are refraining from providing updated annual revenue expectations until more reliable information becomes available.”