X2M Connect Limited (X2M) Earnings Call Transcript
September 21, 2026
Earnings Call Speaker Segments
Good morning, everyone, and welcome to X2M's webinar this morning. It's great to have a large number of participants here, and thank you for taking the time. I'm going to talk to you primarily about our activities in the data center space. I will touch on our existing core business and in some of the questions that I've come through, it will give me a chance to elaborate on our established business as well. I'm sharing my presentation with you. This has been lodged with the ASX. I'll encourage you to go through and have a look at the disclaimer that's in there. That's an important note and it will be as important as other parts of the content. X2M at the heart of our company is our software platform, a patented software platform across 14 countries, 40 different patents and a platform that can connect any device onto the one platform, have them communicate with each other and control each other without human intervention. A platform that can communicate across any telecommunications frequency or backhaul, 3G, 4G, 5G, narrowband IoT, LoRaWAN, Wi-SUN, you name it, we're active across all of those telecommunication media. A platform that can hold smart centrally in the cloud or at the edge of the cloud, which means the ability to send data quickly, go back and control devices quickly, the ability to scale up cheaply and efficiently. As you know, we're not a new company. We operate across 4 geographies. We have 91 enterprise and government customers today using our platform. We have over 500,000 connected devices and we process over 300 million data feeds a month already. Our platform and the IP that sits around it is very well suited for the data center space. And it's a good natural and logical extension from our activities in the smart city utility sector, water, gas, electricity and now data centers. Last year's revenues, you may well be aware, under $9 million, up 38% year-on-year. Strong growth in gross profit, really good control over costs. And in fact, our costs have been progressively heading down. Q4 OpEx was down 24% year-on-year. We came into FY '27 with about $3 million of revenues already contracted. So really, we're building a data center capability on the back of an established business with a large customer base who in themselves represent a very large addressable market. Our existing customers in the smart city space represent an addressable market of over $750 million of upfront revenues. I got asked just last week, where does data centers fit with respect to the smart city work that you're doing? It fits very, very well. History and our existing business is around utilities, utility digitization, smart and supporting primarily enterprise and government customers in that smart city sector, water, gas, electricity, meter digitization, pressure sensor management, leak detection, street lights and that's established a very good foundation and proven out a platform that's given us the confidence to build on that and enter into the data center space. In the data center space, we are partnering with world-class operators. And over the next few months, we will make announcements as to who they actually are. And as I said before, where we're at is a natural extension of our existing business and water, gas digitization is a significant part of it in energy. We first launched our first smart communities here in Australia in Chiltern and Yarrawonga and we have now signed 3 partnering agreements on data centers, and I'll say a bit more about that very, very shortly. We have released to market this year 2 data center products. One is a managed delivery product. These are typically 3- to 5-year contracts that give us the right to build out a data center for a land developer once they have got the approvals to build a data center. So typically, a land developer would identify the land, they would get the approval to build the data center, they would build the shell and we have the rights to do everything inside that shell to kit out the data center, to bring in the operators, to bring in the tenants, to provide the funding and then earn a revenue stream from each of those activities. Our first binding contract represents an upfront cost base of about $250 million, of which we can make a margin on. Sitting alongside that is X2M DC platform services. And I should say on that, I should say we registered a new subsidiary company that will hold all our data center contracts, and that's called X2MDC. X2MDC platform services monitors and manages and controls all of those diverse sensors that sit within a data center. And as I said before, a 100-megawatt data center has upwards of 30,000 devices in the platform. In every case where we have undertaken to build out a data center, we will embed our platform into those managed delivery projects. And that gives us upfront revenues and also then gives us long-term recurring revenues. So what have we achieved to date? Pipeline is well in excess of 200 megawatts. We have 3 agreements, 1 signed binding contract and 2 partnering contracts. Sales journey looks like this, qualify the customer, get confidence that, that customer is able to get the regulatory approvals required to build out a data center, enter into a partnering agreement with them and then move into a binding contract to build out the data center. And we're building really quite a steady pipeline. And as I said, we have got 1 binding signed contract and 2 partnerships in place. And indeed, today, we announced our third partnership to the ASX. Our data center projects and our platform are built for the AI world, and it's about building high-density GPU loads that can run complex AI applications. And the steps in it is connectability, is the aggregating of data and providing strong alerts and visualization to the end customer, optimizing the -- effectively the cost base within a data center, better energy, better cooling because of our ability to monitor and control end device. And what that does is provides for better economics for data center operators. A little bit about our platform. This is a well-proven platform. It has been operating for over a decade. Today, it connects water meters, water is relevant for data centers, gas and electricity meters, electricity is the most critical component of a data center. It can operate 5G networks. It provides public safety applications such as HelpMe that we launched in Korea last year. Many of the data centers being built out today are precinct data centers. And so we have the ability to manage the other devices in that precinct such as EV chargers and batteries. So we have energy management capability, and we have battery storage capability. We have the ability -- what we do is we suck up data from all of those end devices, and we put them into a usable format in real time, quickly and cheaply and what all of that does is enhances the operation of whether it be data centers or indeed utilities in South Korea. What this slide does is it just shows you some of the dashboards that in real time provides the end customer relevant information to not only optimize their data centers or their utility operations, but also allows them to then go back and control these end devices and manage the SLAs that they in turn enter into with their customers. I think we'd have to be living under a rock to not realize the amount of activity in this space. I was chatting to a colleague at NVIDIA not long ago, and he mentioned that just today, there is a 60 gigawatt shortage of computing capacity. That's today, little on the forecast of where this business is going. And as you know, the forecast range from very large to very, very large, and I think that X2M is well positioned to capture a share of this market. As indeed, Australia is very, very well positioned to capture a large share of the data center market. We've already announced to the market our expansion plans today. We have operations in Japan, South Korea, Taiwan, the UAE. We are closely evaluating the Indian market. That's for our established businesses. In Australia, we will spearhead our data center entry. And then we will use our existing infrastructure in other markets to look at tapping into those markets in the same space. And finally, we can have all the technology. We're only as good as our ability to execute. And between Board and management, we've assembled a very strong team that has the ability to take X2M to a whole new exciting level. Alan Stockdale is our Chairman, very well known Victorian. He was also Chair of Macquarie Infrastructure and Chair of City West Water. Damien Johnston ex BHP and Tabcorp; John Stewart, ex JPMorgan and Gresham; Kate O'Sullivan. So Alan, Damien, John and Kate are non-Executive Directors alongside myself. I've been running this business since about 2013. Keith Jelley joined us in 2014 and a very experienced Chief Operating Officer and Chief Technical Officer; Dr. Sajjad Ahmed heads up our data center and AI practice and Yongsun Kim heads up South Korea and Steve Fang heads up Taiwan. Oliver Carton is Company Secretary. So really to summarize, we've built over a decade a really strong software offering that applies and has captured a good chunk of the smart city market in the markets that we're in and is now being extended into the data center space. The platform is very well suited for the complexity of data center operations that's what's given us an edge here. On the back of our first contract, we have generated a strong pipeline of future data center projects. Of that, now 3 have turned into partnership agreements or MOUs. We've got 1 binding contract that has the potential to deliver us $250 million plus of revenues in this business. And I'm expecting that over the next 6 to 12 months, you'll see these projects getting commercialized. You'll see -- start to see early revenues coming from these projects, and you should expect to see more announcements in this space as well. So I will stop there. There's been a host of questions that have come through. Let me stop screen sharing. And I'm happy to open up for Q&A from here. [ Angus Kennelly ] is going to be the convener from here for the next few minutes.
Thanks, Mohan. So look, there's been a lot going on with X2M over the past month since you've launched your data center strategy. It's been a very exciting time. What specifically should shareholders be looking out for over the next 6 months?
So Angus, we have 2 businesses, they're related businesses. One is our established smart city practice. So this is about digitizing water, electricity, gas utilities. It's about digitizing street lights and public safety. And so I -- when I look at that category, to me, it's a bit like a cruise line. It's solid. It's growing well. It has got 91 customers in there. I think in 14 years, we've only lost one customer in the segment. And increasingly, it's paying our bills. So look to see that business continue to grow steadily. Alongside that, we're leveraging that to tap. What started off as being our blue sky scenario and that's now becoming real. So you should expect to see us taking partnership agreements into binding contracts. You'd expect to see us announce leading partners in the data center space for the provision of infrastructure. And as you know, in the managed delivery area, we have the rights, as I said in the presentation, to kit out the data center, to provide the financing for the data center, to bring in the tenants and to bring in the operators and we have the right kind of margin from that. So expect over the next 12 months to see some of those announcements at the [ airways ].
And is there a specific margin X2M is targeting for the managed delivery services?
Look, we haven't disclosed to the market the economics around managed delivery, and we haven't done that for -- because it's commercially sensitive. I can say 2 things. I'm not a believer in loss leading as a principle. So I'm expecting to earn a margin from the work that we do. That's on the upfront revenues associated with building the data center. We have said that for a 10-megawatt data center, our recurring revenue is between $600,000 and $700,000 per annum. 100 megawatt data center, it is about $6 million or $7 million per annum, but entire OpEx in this business is just a bit over $6 million. That recurring revenue you'd expect to run for over a decade and you'd expect that to be a very high-margin component of our revenues.
How does X2M's experience in water, gas and energy translate to managing a high-density GPU data center?
Yes. So look, very good question. Well, let's start with the platform. What you've got is a proven platform in countries that are technologically highly advanced. And South Korea, Japan, Taiwan are second to none in this space. And in each of those countries, we've replaced, particularly Korea and Japan, we replaced established large operators with the strength of our platform. And it's a proven platform that is operating very efficiently. So it gives us the ability to leverage that and move it into the data center space. Project management, all our customers do large rollouts, and we assist them with their rollouts. And so the project management area is a core skill and competency of ours. Then the customers we have are large conservative customers, the government instrumentality is by and large, that are quite demanding. So we have a skill in customer management and enterprise-grade customer management. And all of those are really very readily transportable into the DC space.
And why does getting more compute per megawatt matter so much to data center operators right now?
Well, it goes to the very heart of the economics of a data center and it goes to the very heart of the sustainability of the environment that it's in. A data center uses, as we all know, a lot of energy, make that energy more efficient, that's better for the community. It's better of the environment and it's better for the economics of the data center operator. Do the same with your water and cooling system, do the same in the surrounding precinct. And what we enable here with our platform is really better management of resources, early detection of faults, self-fixing of faults because devices can communicate with each other. And as I said before, that goes to the heart of the economics of a data center operation.
And could you elaborate on what your strategy is to convert your growing 200-megawatt plus pipe....
Yes. So as I sort of mentioned briefly in my presentation, since we announced our first data center mandate, we have had a large volume of inbound inquiry from participants in the space wanting assistance. And our process is this. When we have a lead, we do the analysis and evaluation, and we have a scoring system that says actually out of 5, this ranks a 4 and highly likely to get up. If it's ranked 1, we tend to keep away from it. And then that typically goes -- moves into a [Audio Gap] contractual components that would go into an interim mandate and then you'll go from there into a binding contract. So the first one -- first partnership we announced is now a binding contract. We've announced 3 more partnerships and expect them to move down at a similar path. And then you start from there, you start the design and execution phase. Once you start the design phase, that's when you start to book revenues in this business.
Fantastic. Thanks Mohan. And do you have any final comments for shareholders?
I had a few questions that came in, Angus, on Friday, if I can refer to my notes and answer that, that came in from our viewers. One was one -- the first question was keep to understand the working capital requirements of a data center. The working capital requirements operates at 2 levels. One is the capital required to kit out the data center. We do not expect that to be funded out of our own balance sheet. So typically, each individual data center could well sit in an SPV, special purpose vehicle, and that will be funded -- not on our balance sheet, but it will be funded within the SPV itself. Then there's a cost for us in terms of the sales [Audio Gap]. The second question is what have we learned from years as a public company and what will we do differently next time? And that's a great question. It's one that has occupied a lot of my mind over the years. I think there are a few things that we would do differently. I would have probably listed the company a couple of years later than we did. But at the time, you can only raise money by going into public markets. We would have raised more at the listing than less. And probably the third area is we would have been more aggressive in the Australian market. Australia, we found in the smart city space quite a laggard compared with Asia. We went to Asia, but Australian investors didn't understand Asia that well. So -- and that's a learning from us. What wouldn't we do differently? We would repeat targeting enterprise and government customers. We would continue to work on that smart city space. That is a huge market, the whole world from Bangladesh to South Korea, Japan are digitizing. 60% of our business is repeat orders. And so there's a lot of things that we've done that we would always do again and again and again. And as with any business and any journey, you learn some things as you go along the way. The third question is what sort of margins and who will provide the capital and what are the recurring fees per megawatt? Like I said, look, we haven't disclosed the margins to the market. That's commercially sensitive. And then as I said, I'm not a believer in loss leading. In terms of the working capital for a data center, look, this is a space where there doesn't appear to be a shortage of funders. And we've got quite a group that have actually approached us to want to fund our data center operations, and we'll make some announcements in that space in the next 3-6 months. Associated with that question is what sort of recurring revenues and what sort of margins. As I said, you can count on about $600,000, $700,000 per 10 megawatts. The data centers that we're dealing with at the moment, start from between 10 and 30 megawatts scaling up to over 100 megawatts and at 100 megawatts, you should expect recurring revenues of $6 million to $8 million per annum, and that is high-margin business. In the UAE and Japan, where we are software providers, and we don't do any hardware, our margins are over 90%. The next 1 was since the SPP was scaled [indiscernible] we went out seeking for [ $1 million ], we got subscribed at about [ $3 million ], and that's why it was scaled back. The refunds are being processed right now. So it should be in bank accounts any time now. And the last question is when does the company expect to be making profits? We have stopped short of giving forward forecast. My -- one of my highest priorities is getting this company to being cash flow positive. And in fact, management incentives are tied to EBITDA and free cash flows. And I've just seen a couple of more questions that have come in. Can you comment... Look, the next question was, can we comment on Miners Rest? We're not going to talk about any specific location at the moment. That's commercially confidential. Each one of our partnerships that we've announced have the potential to make a significant contribution to the company. And if it didn't, then we wouldn't announce it. So if I can leave it at that. And the last question is when would the conditional contracts become binding contracts? You should expect the conditional ones to turn into binding contracts or not in a 3-, 4-month type window. So that's all the questions that have come through so far. And I'll -- Angus, unless you got anything, I'll wrap up here. And just in summary, X2M has got a tremendous opportunity in both the smart city and the data center sectors. The data center sector is a significant blue sky. This is something that we've been developing for some time. We launched our first energy product, Hive.AI, early last year. It's good to see all of that coming together. We have got an ever-growing pipeline and that I expect to announce to market over the next period of time. So again, thank you all for attending. And I really appreciate it and good to have a large number of attendees at today's webinar. And as always, those of you who are our shareholders, thank you for the faith that you've got in us and the support you're giving us, and good morning.
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