The meeting recording with the M2M Connect CEO, Mohan Jesudason, is now available. And you can access the transcript here: M2M Connect Transcript.pdf

So, a quick glance at this company is not going to set your world on fire. The share price has collapsed since listing, it’s extremely illiquid, and they’re still bleeding cash. Given the balance sheet and cash burn, you have to conclude that a capital raise is only a matter of time.

Tell me more Andrew!

Well, the bull case is that X2M has spent the past decade building and proving the tech. A lot of the early years were loss-leading to secure reference sites, and they’ve since walked away from low-margin hardware work and restructured the business. What they have now is a platform that’s finally been commercialised, with real customers, real deployments and some meaningful sales momentum.

Mohan stressed the uniqueness of their platform (device-agnostic, real-time control, patented), and the fact that once you’re in churn is basically zero because switching is expensive and painful for utilities. That’s why the “land grab” concept comes up repeatedly. If you believe they’ve already done the hard yards, the next phase is harvesting existing customers, expanding into their TAM, and layering high-margin SaaS on top.

The addressable market is massive, the competitive landscape is fragmented, and X2M seems to be one of the few actually doing device-level control, not just data collection. On a pro-rata basis the shares trade on roughly 0.75x sales, which is dirt cheap *if* they can sustain the revenue growth while holding the cost line.

The market clearly doesn’t buy it yet. “Show me” is the dominant sentiment, and that isn’t unreasonable given the track record. But if you think they can maintain this momentum, there’s a case that this is deeply mispriced. The next couple of quarters will tell us whether this is finally an inflection point or just another head fake.

Too early for me, but one to keep an eye on.

Here are some other highlights:

• The license model is the real growth engine (they license the software to 3rd parties that handle the sales and bundle with hardware). Most of the software margin goes to X2M. Japan and the UAE are cases in point; licensees install the platform once, handle all sales, and X2M collects high margin SaaS fees for ten years. Margins are around ninety percent and no staff are needed on the ground.

• Sales cycles are long but defensible. It can take twelve to twenty four months to win a new customer, but contracts are multi year and very sticky.

• The total addressable market inside existing customers is large. South Korea has roughly five hundred and eighty million dollars of customer TAM and X2M has only reached around five to six percent so far.

• Hardware is being phased out. They no longer want low margin device sales and are focused on recurring platform and SaaS fees.

• The platform has real differentiation. It can control devices remotely, not just read data, and is device agnostic and able to operate over any telco backhaul. This is a key technical advantage.

• Early traction is emerging in new markets. Japan, Taiwan with Hive.AI and the UAE are all showing progress. The UAE partner has already landed large real estate contracts.

• Renewables is a new vertical. Hive.AI in Taiwan is the first step into energy optimisation. Early stage but potentially significant.

Speaking of interesting price action in nano cap land: Tomorrow's Strawman guest is a doozy.

For context, the SP is down 95% since the 2021 IPO, and shares on issue appear to have tripled.

Today, after a small and unremarkable contract announcement, 10% of shares changed hands. From Friday's close of 1.5c the price opened up 20% this morning at 1.8c, only to close the day down 20% at 1.2c. This has been the way of things for the last few months.

They have significantly reduced debt recently but not much cash left and are still not profitable.

Look forward to the interview with Mohan tomorrow @Strawman!

Fairly recent IPO 2021 at $0.25 per share. Below are some notes I put together from my research on X2M from the Prospectus and latest Annual report 2023.  After my research it's a pass for us, but share main notes below.

X2M is an Australian technology company focused on digitising utility meters and sensors in the APAC region, either by replacing manual, analogue hardware or enabling remote monitoring and control capabilities for next generation ‘smart meters’, managed over the internet. 

Troubled Past

X2M, a technology company with a focus on IoT, traces its roots back to the acquisition of Freestyle in February 2020. Freestyle, incorporated in December 2005, embarked on a journey fueled by approximately $70 million in capital raised between its inception and November 2019.

Freestyle's early years were marked by extensive R&D efforts, including system design, software development, and prototype creation. Despite minimal revenue during its establishment phase, Freestyle gradually gained traction, securing contracts and transitioning towards hardware and software development.

Between 2014 and 2019, Freestyle witnessed significant growth, expanding its customer base across various jurisdictions and enhancing its technology to communicate over diverse networks. However, profitability remained elusive, and complications arose from shareholder-related agreements and disputes.

In April 2019, Freestyle embarked on an IPO journey, backed by promising revenue figures and a strong customer pipeline. However, legal proceedings initiated by disgruntled shareholders halted its IPO plans. The subsequent ASX decision further dampened fundraising prospects, leading to financial constraints and eventual voluntary administration.

Despite Freestyle's challenges, X2M emerged as a beacon of hope, acquiring Freestyle's assets and technology in 2020. X2M's confirmation of no association with the litigating shareholders underscores its commitment to a fresh start.

Key Markets

X2M has established a head office in Melbourne, Australia, with subsidiaries in South Korea, Taiwan and Japan. X2M biggest market is currently South Korea. X2M established an office in Beijing during 2021.

From the Prosectus

 The Company’s core activities in its existing markets are summarised as follows: 

·      In Australia, activities are limited to gas usage monitoring for a utility provider; 

·      In Taiwan, activities cover residential gas and grid pressure monitoring, residential water monitoring and industrial battery monitoring; 

·      In Japan, activities cover residential bottled gas monitoring; and

·      In South Korea, activities cover residential and grid water monitoring. 

From X2M Prospectus Smart Utility Meters and Sensors Enabled by IOT

Smart utility meters typically are water, electricity and gas meters that have communication and built-in logic capability. They enable the collection of data typically to automate manual billing processors, as well as allowing control and configuration of the device. Typical data available from smart utility meters is resource consumption, flow and pressure, valve status and control, configuration and rating data, and event and alarm data. 

IoT sensors, as separate from smart utility meters, allow collection of various measurements that might include pressure, temperature, water and air quality, fire or security alerts or carbon dioxide (CO2) levels and which may be in a single sensor or grouped in a larger multipurpose sensor. IoT sensors might be located in industrial locations or in residential locations. Where measurements are recorded for individual residences, the operation of these devices may be subject to applicable privacy laws to the extent such measurements involve the collection, storage or use of personal information. 

For clarity, whilst the Company’s technology currently collects and stores data including consumption and flow measurements and which may include personal information provided in South Korea, Japan and Taiwan, it collects, gas consumption data but does not collect any personal information for its commercial IoT platform operations in Australia.