X2M Connect Advances SaaS Pivot Amid Revenue Decline and New Market Moves
X2M Connect reported a 51% revenue drop in Q2 FY25 as it shifts from hardware to SaaS, yet improved margins and EBITDA signal progress. Strategic partnerships in the Middle East and Taiwan offer promising growth avenues.
- Revenue fell 51% to $1.7 million due to exit from low-margin hardware sales
- Operating costs reduced by 36%, adjusted EBITDA loss improved by 25%
- Connected devices grew 5% to 544,910; enterprise/government customers up 10%
- New partnerships launched in Middle East and renewable energy sector in Taiwan
- Cash position tight at $0.7 million with ongoing focus on strengthening balance sheet
Strategic Shift Impacts Revenue but Improves Profitability Metrics
X2M Connect Limited (ASX:X2M) has reported a significant 51% decline in revenue to $1.7 million for the second quarter of fiscal 2025, reflecting a deliberate move away from low-margin hardware sales towards a higher-margin Software as a Service (SaaS) model. This transition, while compressing top-line figures in the short term, has contributed to a 36% reduction in operating costs and a 25% improvement in adjusted EBITDA losses, narrowing the deficit to $0.8 million.
The company’s gross margin edged up to 44%, a modest but important gain driven by the increasing share of SaaS and maintenance revenues. This shift aligns with X2M’s strategic focus on sustainable, recurring revenue streams rather than one-off hardware sales, a move that industry observers often view as essential for long-term value creation in the Internet of Things (IoT) sector.
Growth in Connected Devices and Customer Base
Despite the revenue contraction, X2M reported a 5% increase in connected devices to 544,910 and a 10% rise in enterprise and government customers to 80. These metrics underscore the company’s expanding footprint in the utilities IoT market, where it provides connectivity solutions for water, gas, and electricity meters. The growing device base and customer count are critical indicators of the company’s SaaS platform gaining traction, which should underpin future recurring revenues.
New Market Opportunities in Middle East and Renewable Energy
A highlight of the quarter was the consolidation of X2M’s partnership with Dicode Technologies in the Middle East, marked by a joint exhibition at WETEX 2024. This collaboration has led to the launch of a meter-as-a-service offering in the UAE, targeting an addressable market exceeding four million meters. Initial deployments of gas meters across six large apartment sites are underway, with first revenues expected within the current financial year.
Additionally, X2M is expanding into the renewable energy and battery storage verticals, sectors poised for significant growth globally. The company’s proprietary IoT platform is well-suited to these markets, evidenced by a commercial partnership with GreenRock Energy Company in Taiwan, which included GreenRock taking a 10% equity stake in X2M. Further contracts, such as with Taiwanese solar photovoltaic firm Heying International, signal growing momentum in this space.
Financial Position and Outlook
Cash flow remains a challenge, with net operating cash outflows of $0.6 million for the quarter and total cash reserves at $0.7 million as of December 31, 2024. The company also holds undrawn loan facilities of $0.5 million. X2M is actively managing its balance sheet, including plans to divest its non-core shareholding in GreenRock Energy for approximately A$0.5 million, expected to settle shortly.
CEO Mohan Jesudason emphasized that the company is well-positioned for upcoming strategic initiatives, including rollouts in the Middle East and potential entry into the Indian market. He highlighted the increasing demand for data aggregation driven by artificial intelligence, automation, and government initiatives as strong tailwinds for X2M’s platform. The company anticipates 2025 to be a productive year, leveraging incumbency in existing markets and new growth opportunities.
Balancing Transition Risks with Growth Potential
X2M’s transformation from hardware sales to a SaaS-centric model is a classic example of the growing pains technology companies face when pivoting business models. While the near-term revenue impact is stark, the improved margins and operational efficiencies suggest the company is on a path to sustainable profitability. The success of new partnerships and market expansions will be critical to watch as they will determine whether X2M can translate its technological capabilities into scalable commercial success.
Bottom Line?
X2M’s SaaS pivot and new market ventures offer promise, but cash constraints and execution risks remain key hurdles.
Questions in the middle?
- How quickly can X2M scale its SaaS revenues to offset hardware revenue declines?
- What are the timelines and revenue potential for the Middle East and Indian market rollouts?
- How will the company manage cash flow and financing needs amid ongoing investment in growth?