X2M Reports 64% Revenue Drop but Secures $1.7M South Korea Contracts and Middle East License

Navigating a Challenging Market

X2M Connect Limited (ASX:X2M) has reported a mixed third quarter for fiscal year 2025, marked by a significant 64% decline in revenue to $1.4 million compared to the previous corresponding period. This drop largely stems from the company’s strategic decision to exit low-margin hardware sales, particularly in China, which previously accounted for about a quarter of its sales. The South Korean market also remained soft, contributing to the revenue contraction.

Despite the revenue setback, X2M achieved a notable improvement in gross margin, rising to 47% from 32% a year earlier. This margin expansion reflects a shift towards higher-value, recurring revenue streams such as SaaS and maintenance contracts, as well as the initial revenue recognition from its first deployment in the Middle East.

Strategic Contract Wins Bolster Growth Prospects

In a clear sign of strategic progress, X2M secured a landmark 10-year licensing contract with Dicode Smart Connect Electronics LLC in the United Arab Emirates. This agreement marks X2M’s formal entry into the fast-growing Middle Eastern utilities market, with expected first-year revenues exceeding A$250,000. The contract includes upfront fees, annual licensing, and device monitoring charges, underpinning a recurring revenue model tied to the deployment of smart gas meters.

Shortly after the quarter ended, X2M also won four new contracts in South Korea valued at approximately A$1.7 million. These contracts, awarded by the cities of Ulsan, Busan, Incheon, and Gyeongju, focus on digitising water services for over 13,600 households, with deployments expected to complete by December 2025. These wins reinforce X2M’s leadership in the water digitisation sector and expand its enterprise and government customer base to 82, an 11% increase year-on-year.

Innovation with AI in Renewable Energy

Demonstrating a pivot towards emerging growth sectors, X2M launched ‘Hive.AI by X2M’ during the quarter. Developed in partnership with Sirius Digitech Limited, this AI-powered platform targets renewable energy companies, aiming to enhance operational efficiencies and revenue generation. The platform leverages X2M’s IoT expertise and existing APAC market presence to tap into the US$491 billion regional energy transition market, potentially driving significant growth in recurring SaaS revenues.

Financial Discipline and Balance Sheet Management

Operating costs declined by 9% to $1.8 million, driven by lower headcount and administrative expenses, reflecting management’s focus on cost control amid revenue pressures. However, adjusted EBITDA loss widened to $1.1 million from $0.7 million in the prior year period, primarily due to the revenue decline. Net cash outflows from operating activities improved by 22% to $0.6 million, and total cash at quarter-end stood at $2 million.

X2M also strengthened its balance sheet through convertible notes and loans, including a $2 million inflow from convertible debt securities during the quarter. The company continues to prioritize financial stability as it executes its transformation strategy.

Looking Ahead

CEO Mohan Jesudason highlighted that contracts secured post-quarter will contribute to revenue recognition in the first half of FY26, providing momentum into the new financial year. The company’s focus remains on innovation, strategic partnerships, and disciplined execution to build a diversified and resilient business model centered on IoT and AI-driven solutions for utilities and renewable energy sectors.