Objective Corporation Limited (OCL) Earnings Call Transcript & Summary

[Technical Difficulty] And across our lines of business, our Information Intelligence business achieved 21% SaaS revenue growth, Planning & Building, 38%; and Regulatory Solutions, 14%. So all in all, very, very solid results. If we move on from those percentages and talk about them in dollar terms, revenue was up 9% to $135 million. Annual recurring revenue in constant currency terms to $121 million. The final adjusted annual recurring revenue of $114 million. That was post the FX changes, which I'll talk about shortly, and the discontinued business, as I've covered off in my letter. Research and development, 30% of software revenue at $34 million. Adjusted EBITDA up 11% at $52 million, our NPAT of $37 million, operating cash flow, $49 million. And finally, incorporating the full-year dividend, which was $0.08 fully franked at 26% (sic) [ $0.26 ]. So, moving on and talking about the investment in R&D. I think this is something that our customers have long called out to us as being a source of great pride for them as well as us. 30% of our revenue -- software revenue went back into R&D. And if you look at the chart on the right-hand side and just look at the way this has been accelerating over the last 5 years, we have invested roughly half of the -- sorry, the $341 million has occurred in the last 5 years. So, 43% of our total R&D investment in the last 5 years alone. That's resulted in some incredible products, which I'll talk about shortly. If we look at our SaaS revenue, it is really driving the growth. So it was 22% for the last financial year in terms of the SaaS growth. And our 7-year CAGR still stands at an incredible 27% over that 7-year period. So again, these are very strong. Our USP, again, CAGR of plus 2%. That's our historical sort of maintenance revenue that people have or upgrade support prem for our on-prem customers that you've seen over a long period of time. And again, it's remained very constant over the same period of time. So, we think that represents a very, very strong statement of how we continue to perform with the conversion to SaaS. Again, in line with our strategic plan, the adjusted EBITDA margin was 39% and 22% was our SaaS revenue growth, as I've already mentioned. Just talking about the bridge to the way that we've come to the endpoint of $114 million, starting off the year with $120 million of ARR. Our revenue -- our SaaS revenue growth -- or sorry, our ARR revenue growth of $8.6 million, the adjustment for the DoD USP contract, which we've mentioned before. The strengthening of the Australian dollar gave us an FX adjustment of negative $3.3 million. And I know that some people will say, well, why don't you hedge that exchange rate? Our view on that is that we really have a lot of in-country costs as well. So whilst the headline is that we get this $3.3 million FX headwind, we also get adjustments on the cost base. And so an FX hedge would really only affect the EBITDA and NPAT lines. That got us to $117 million. And then we had effectively a discontinued business. One of the -- as we've done historically, sometimes when we acquire other organizations, they have other things that are, I guess, not completely on core mission in terms of Software-as-a-Service solutions, and we've had one with NHVR for a long period of time that we inherited with Itree for reasons that are somewhat linked to issues in the Middle East, resulting to NHVR's reduction in operating ability or operating capital from changes to the fuel levy. That contract has now concluded, which allows us to -- it has no impact on SaaS revenues, of course, but will be something that we won't be taking into FY '27. So, we get to the conclusion of $114 million being our adjusted ARR at the endpoint for the year. If we talk about some of the highlights for the year, I think people are probably -- people that know us are well appraised of the flywheel of innovation. This continues to underpin everything that we do. And of course, this year was no different and the outlook for '27 is no different as well. We've got an amazing number of customer relationships now over 2,000. We've got some customers now approaching, in fact, a 30-year relationship with us, but this has really underpinned the organization for a very long period of time. If we also talk about our products, I think coming into the end of '26 and the beginning of '27, and I'll talk about our Activate Conference shortly. We've reached quite, I guess, an inflection point with our product set. We will be talking about Nexus, the Nexus platform, not only during the next couple of weeks, but also in the coming months with our Customer Conference for Information Intelligence. We have -- we'll be talking about Objective Build shortly with respect to the Australian marketplace and also talking about the maturity of our RegWorks solution with Version 8. If you look right across our customer -- sorry, across our solution set, including other solutions, Keystone and also Connect, we've reached an inflection point of absolute product maturity. And it doesn't matter which of those products you take, and it doesn't matter within which marketplace you take. I think each of these products has proven out to be the aspirational product. And so one of the things that we always do, whether we're trying to drive an absolutely new product outcome or whether we've got something that we're nurturing from an acquisition, we always want to reach the state where we've got a very mature product, a very high quality that is the standout product that people aspire to have. And I think here, at the beginning -- what's really the beginning of FY '27, we've now really reached that state with our product portfolio and a sense of maturity where we can claim that we have the outstanding products in this space. Equally, there's been a lot said about defense or, I guess, the Department of Defense. But at the same time, as I outlined in my letter and as people will understand that are in the market, we've been investing very heavily in defense and national security over the last couple of years, particularly the last year, where we've stood up an entire team dedicated and focused in this area. We've also more recently added a new team in the U.K. to pursue opportunities in defense and national security as well. And I don't really feel that I can -- well, I can't name the customers, but we did welcome a number of new customers to the organization that are in defense and national security and in that -- and in the defense industry in the last 12 months, have some of the images on the right-hand side to give you some sense of those. Equally, I think the SaaS apocalypse narrative is pretty much burned away now. I know that the OpenAI CEO was very recently -- actually talked about the SaaS apocalypse for enterprise software not really being a thing and people accepting what we've been talking about for the last couple of reporting periods about SaaS and enterprise class software is really a significant amount more than just lines of code. And you can see all the things there where we've called those things out. But I think this is probably a well-trodden path now and the market is starting to appreciate that enterprise software is not going away anytime soon. I think if we look more broadly at AI, it feels like we've been training for this period for a long period of time. And really, I think if I look at the bottom of the infographic on the left-hand side, systems of record have become -- if AI is the new black, systems of record are in a darker shade of black. And I think there's a sort of a well-understood position in the marketplace now that the systems of record are driving the AI outcomes in almost all organizations, especially within government. And so Objective is incredibly well placed, not just through Objective Intelligence, kind of our safe governance layer for trusted AI, but also in the other things that we do. If we look at the advantage for us, it's really our core strength. So the systems of record, as I've touched on, the security around systems of record. And if we think about AI in the government context, the answers from LLMs that are using the systems of record of government really depend upon what security access people have to the underlying information. This is something only systems like Objective can do. Also the sovereign capability, again, increasingly important from a governance perspective, where is our data going, who can access our data, whether it's even owned by what we would consider to be a very credible organization that's domiciled offshore. These are all things that are front and center in people's minds now as they're looking at how do we protect our sovereign information. And of course, governance. When decisions are made with AI, who is actually governing those decisions and providing an audit trail? Increasingly, we're being asked to be the audit trail for other systems that are producing AI outcomes as well. And I can say that in at least one case, which I'll probably talk to later on, we're underpinning systems like Palantir and becoming the system of governance for that particular product. Just in terms of what our customers are saying, you can see here, we've got 3 customer quotes. These are all where we have been delivering AI solutions to our customers. So across Scottish Government, Tauranga City Council in New Zealand and the Office of the Scottish Charity Regulator. These are all AI-driven outcomes that we talk about in our results announcement. I think that also comes back to another thing that's been very, very topical in the investment community has been user-based pricing and is it going to disappear? I think if you look across our portfolio, we've got quite a mixture of user-based pricing regimes as well as consumption-based pricing. And I think where we've moved to really in the context of AI is what is the value for a customer look like? And so increasingly, customers are willing to engage on a value and outcome-based pricing mechanism as opposed to how many users are going to be using the software. I mean, I think we all appreciate that in the world of Agentic AI, that it's really the value that gets created that people are interested in harvesting. So finally, in the context of Objective -- of all the Objective products is Objective Intelligence. As you can see here, Objective Intelligence is now underpinning all of our products. It really is providing the guardrails for trusted LLM access by organizations and making sure that we don't have any shadow IT or shadow AI that's occurring and also controlling the costs. Cost of token consumption has been a big thing in the media. It's been a big thing here at Objective. How do we get the most optimized cost of AI, as well as where in terms of whether it's sovereign or whether it's even on-domain AI capability. All these things are within the purview of Objective Intelligence. Just to call out how confident that we are about the year ahead. 3 weeks ago, we had our Activate26. It was the biggest international event for our staff that we've had in all the years we've been in business. We had everyone together from around the world. I think there's talking about our software solutions that I was talking about before, demonstrating where we are with Objective Intelligence and the portfolio of products we have, but more so the opportunity from a go-to-market perspective. And I think historically, and I called this out in my letter to shareholders, historically, we've probably been slightly undercooked on our -- just the size of our go-to-market team, and that's something that we've been progressively addressing during 2026 and certainly continuing to address in 2027. It's about reach. It's about distribution. It's about having stronger presence and stronger domain presence in the markets that we're in, and that's certainly playing out in terms of our engagement with customers. If we look at each of our business lines and sort of give a couple of highlights of each. First of all, calling out Information Intelligence. I think it's fair to say that Information Intelligence had a particularly strong year with Nexus and 3Sixty. Again, we've touched on the AI projects or the AI-powered Objective Nexus projects that we've done at Tauranga Council in particular, the Scottish Government, again, in particular, where we've been doing and supporting public inquiry projects, the establishment of the Defense and National Security team, the updates that we've been doing to the Objective Nexus platform, which you'll hear more about in the next couple of months. And equally, the other things that we've done within Connect and Keystone for FSI. They've all been -- particularly Nexus has been particularly strong and certainly achieved almost all of the goals that we've set for the year. Again, just a couple of quotes from Gartner to give context. You don't need to rely on just me saying it. Gartner says it as well that the government information is growing faster than governance. I think the other thing just to sort of follow on from a previous comment was that was really that it is the information within government systems that are driving the AI outcomes that we are focused on very much today. Talking about Nexus. We've spoken about previously ECM, the move to the cloud, Objective 3Sixty, Objective Redact, Objective Connect. These are all coming together with the Objective Nexus platform and also underpinned, of course, by objective information -- sorry, Objective Intelligence. And you can see on the right-hand side here, how we are positioning this product. As I said, we will unveil the full breadth of Objective Nexus at our Collaborate, our customer conference in October, but it's certainly become the foundation for trusted and responsible AI in the customers that we have today. In fact, we're probably seeing more demand driving from our customers than we've ever seen before in terms of Objective being the source of truth that they want to drive these AI outcomes. As I've said, these are probably some of the use cases just in Information Intelligence, document intelligence at massive scale for public inquiries, enabling responsible AI, leveraging private RAG in the high security environment and automating redaction. These are the primary use cases that we've seen in the last 12 months. And I'm sure when I'm here in 12 months' time, we'll be talking about this at a much greater scale than what we're already talking about this year. We've also historically talked about the Nexus conversions and these have continued. The uplift case as this continues to be proven out between 1.5x and 2.5x, the existing USP contracts is working out still to -- in every case where it's landed. And as you can see, still here, we are in -- going into FY '27, where we've got 25 -- sorry, $24 million of USP revenue that's still available to convert into these uplift cases. If we move on to Planning & Building, we've highlighted this before. 2026 was really the transition year where we finished or are in the process to finish a lot of the conversions in New Zealand. Over to Objective Build. So, we've now got 35 customers live on Build in New Zealand, which is just over half of all of New Zealand councils. And we've got many more to go. At the moment, I think we're at -- we've got 43 BCAs moving to the Build platform. We also launched Build in Australia, and I think this has sort of been one of the highlights for the year with North Sydney coming on board as our first Objective Build customer. So, that project has commenced at the moment. We've also got development going on for Victoria and Queensland and WA, where they've got slightly different planning jurisdictions. But I think we're really thrilled with the way that the platform is playing out. I'll talk to that in a slide -- a couple of slides' time. Further to that, we've also done a whole bunch of work with Isoplan, the business that we acquired last year. Isoplan Professional is due out very shortly. And that coupled with Build and Trapeze really completes the great end-to-end picture. This is a bit of a view of the number of stakeholders that are involved in Build. We've obviously got the government themselves, but there's a whole bunch of other organizations that build on this ecosystem. And everybody that's been engaged with Build across New Zealand has been telling us what a difference it's made to their environment. I think the results speak for themselves in terms of the conversions over to Build. And I think we've also got plenty of positive media attention in that country. Just giving you a sense of where we are from a, I guess, from a marketplace perspective, I appreciate New Zealand is not quite as big as that, but just so that we can show it on the infographic. Trapeze has an incredible footprint, Objective Build already the majority share of New Zealand BCAs installed just as we speak. And in terms of Isoplan, again, the majority of councils in New Zealand using that platform, and it is -- almost every Southeast Queensland council has that Isoplan solution for strategic plan management. So, I think it wouldn't be overstating it to say that we are the dominant player or the leader in this market across ANZ. I've probably spoken a little bit about North Sydney Council. I think it's also -- would be reasonable to say there's a lot of councils that form part of our foundation program that we're expecting to onboard or contract and onboard over the next 6 months, but the uptake and the interest in this product has been very, very strong. If we look at the paths to growth for Build, obviously, Build Australia is our focus in the short term. It has been -- we've been working on the solution for this market for the last 2.5 years. We've got a fair bit to go, but we've got a product launched here now, particularly for New South Wales. But increasingly, we're engaged in the other Eastern states. And that is really the focus for FY '27. Whilst we're being -- we are being contacted by a number of other countries that are understanding from what we've achieved down in New Zealand, and they'd like to achieve that. And we'll talk more about those things as they happen. But really, at the moment, the opportunity is so great in Australia that that's where we're focused. Additionally, New Zealand, there's still a fair bit of white space to go, especially in the large metros. And again, we're continuing to drive that out, as well as the move from the existing version of Isoplan that was very functionally reached to an Objective Isoplan version or Isoplan Professional version that we are in the process of releasing into the market. And then, of course, Trapeze -- sorry, Build, whether it's Trapeze, whether it's Build itself or whether it's Isoplan, all 3 of those products are really benefiting from Agentic AI. And anyone who's a user of those platforms or has seen the new versions of those platforms that are being released in the next 6 months will see enormous uses of AI and proven out use cases of AI. So, it's fantastic for customers and fantastic for our teams to see. If I move on to Regulatory Solutions, it had a little bit of a quieter year for a number of reasons. We were building out go-to-market capability, both in Australia, in the U.K. as well, and we've been increasingly looking to Canada. And whilst sales revenue is up slightly and ARR up slightly, as I mentioned, we do have a discontinuing contract, which is not RegWorks related, but a bespoke services contract that has been around for a long period of time. Equally, the highlight for us for the year was being selected as the platform of choice for DCCEEW sort of national -- obviously, part of the federal government. And it really allows us to continue to deliver what we're doing -- what we've started doing there across 18 of its agencies over time. So, that was a major new contract win during the year. On top of that, Objective RegWorks V8 is just in the process of being released. That's Version 8 as opposed to an engine. But it is the culmination of all the things that we've learned over the last 5 years. It really is a step change product. It's very, very rich in capabilities. It incorporates again, Agentic AI alongside all of the other Objective applications. And we'll be delivering that to customers progressively over FY '27. Equally, we've spent a lot of time working on how to get the cost of deployment down and our RegWorks Accelerate package has really been highly commended by customers as a fast path to get them going. And again, this is something that we're using as we go into the other regions, the U.K., Canada, et cetera. It's a global opportunity. We are pretty much still focused on 5 Eyes countries as can be seen by these regulators here. I think there'll be more to say as time goes by in terms of what we're doing in the other jurisdictions. But now with V8, we really have a regulator-in-a-box type concept. So across licensing and registration, compliance and monitoring, enforcement, investigation and prosecution and finally, education. We've got all this now as a standard COTS application for customers where there is really no -- really nothing other than customer configuration required than to get up and running. So all in all, we think RegWorks is really an unbeatable value proposition today. If you look at the competition, they're generally based on ERP or CRM. But for us, it's all about domain-specific workflows, onboarding faster, anywhere where we've needed feature parity with the platforms we've got it and all a very fast way to deliver a regulatory outcome to all best practice. I'll probably touch on V8. You can go to the website and see more about what it's all about, but they're kind of the 5 big things that are in that release. And then finally, if I talk about our outlook, we have, I guess, we've had a lot of our institutional shareholders asking us to stop talking purely about ARR and get back to earnings. And for us, obviously, we've got an adjustment as a result of the defense contract, which we highlighted some time ago, but we are certainly -- our outlook is for an adjusted EBITDA number in FY '27 of at least $40 million. That's taking into account all of the investment that we're making in go-to-market, the ongoing investment in R&D and some other strategic capabilities for IP ownership development. For the very first time, in terms of our outlook, we're putting invest in go-to-market first. We think we've got incredible product leadership now. There's not a customer where they say, we don't think your products is not as good as anyone else's or they don't think our product is, in fact, the market leader and the aspirational product in market. So, I'm very proud of what the team has achieved from a technology perspective. But investing in go-to-market and getting a higher return on the investment that we've made in R&D is very much our focus as an organization. As a GovTech player, we're always focused on our profitability. I think we haven't tried to productize services as many have. Our focus has been on how do we reduce the time and cost to market for our customers because at the end of the day that's what drives faster uptake and gives us capability to engage in -- I don't want to just say partnerships, but a broader distribution for our products. And so it's really been about how to actually reduce that deployment cost. And we've seen that particularly through Build. We've seen it through Information Intelligence, and we've seen it with the Accelerate program now with RegWorks, but that continues to be a focus. And we are still very active in M&A. I think now that a lot of the private equity firms have left the sector, some of the pricing at this point in time is pretty attractive, and we certainly want to get in because we think there will be a post-SaaS apocalypse bounce. And so now is the time to be, I guess, fairly active in the M&A -- on the M&A side of what we're doing. So all in all, they are the 4 things that we're very focused on as an organization. We've still got a bit to go. I know there'll probably still be some outstanding questions around what's the future with defense, but I can tell you that the defense industry and the national security industry are very foremost in our minds today. And with that, I believe that we will be opening up to questions.

Thanks, Tony. We have some presenters online who we will move to -- who we are moving to, with the first question here is from Josh Kannourakis from Barrenjoey.

Can you hear me okay?

We can, Josh.

Great. So yes, just a few questions. So firstly, I'll just jump to -- around the outlook. So, can we just talk about just with the legacy contract with the National Heavy Vehicle Regulator? Obviously, that just came in there. Was that expected? Was it unexpected? And are there any other -- I think people will obviously want to know. Are there any other legacy contracts that can roll off that you see on the horizon into '27? Or should we expect a more normalized year in terms of that and a return to growth ex the -- obviously, those adjustments that we have seen?

Yes. Look, I think there was -- there's still options to continue to do work with the -- so let me backtrack. So firstly, when the fuel excise came off, fuel several months ago as a result of what was happening in the Middle East, NHVR had a pretty material challenge in terms of what that meant for them. Financially, I can't go into it, into the exact numbers that they had, but it was very material. And they went into, I guess, from a systems perspective, very much a hibernate mode in terms of the projects that they're working on to the point that it didn't kind of really make any sense for them to continue what they've been historically doing with us over what was my understanding is a 20-year period. We went through the same process with 2 councils in New Zealand when we acquired MBS years ago where we acquired MBS for -- to get GoGet. And then we had the contracts with Tararua and Manawatu councils that were outsourced services and not particularly profitable, and they came to an end and we exited those contracts. The same applies to NHVR. I mean, whilst we remain helpful where we can -- when we acquire these businesses, we don't want to upset the customer by coming in and just saying, hey, we don't want to do this anymore, but they do always tend to go to their natural conclusion. To answer the other part of your question, do we have any more? We have another one with New South Wales Transport, but transport is a much bigger portfolio customer of ours. They have a lot of our technology and the historical camera system that we do for the Department of Transport, where we are anticipating that we will be moving that to a RegWorks platform. Again, it's a much smaller contract than the NHVR contract. So that's, I believe, the only other one.

Got it. That's helpful. And just in terms of Build, some good momentum there in terms of those initial foundational customers, especially in Australia. Just to help the market and investors understand, though, my understanding was the initial sort of customers obviously get some discounts. So as we look at across '27, how should we think about scaling up and monetization both across '27 and I guess, exiting '27 in terms of that profile?

Yes. It's obviously different to last year. I think it's going to be progressive. The most important thing is to get the budgets into the council's budget for the next financial year. Look, in the case of North Sydney, it wasn't a -- they were able to actually go to the council and say there's nothing like Objective Build. We've been engaged with Objective since the beginning. We just want to buy it, and they got council sign-off to do that. It's on public record. We've got a number of other councils that are trying to go through that same path. However, to your point, that probably the price point that we gave North Sydney Council is not the price point we're going to be giving everybody. But given that they were so actively involved with us in the foundation program and given that they are literally one block away from -- one physical block away from us here in North Sydney, it just made a lot of sense to get them on board and get them moving as a proof point. So if I come back to -- we just need to now roll out here in New South Wales. We're pretty active in Queensland, and we're progressively more active in the Southern states. But again, I think it's a matter of us getting -- making sure that we're getting in council's budgets for the next period.

Great. And final one for me just on the investment that you noted in period. Obviously, we don't have all the granularity around that in terms of how much is there, but it does sound reasonably significant and you're obviously maintaining the R&D to continue the product road map and AI initiatives. A lot of people are talking about AI efficiencies and other things like that. How should we think about maybe 2 parts. One about the investment this year, how much of it is continuing into the future as well into the cost base versus what's the counter on that in terms of potentially other AI-related efficiencies within the business and how we should think about that margin profile medium term?

Yes. So we are -- like everybody, we're trying to get to the truth in terms of how efficient -- if I break up in 2 parts, first of all, address sort of the internal efficiency. We are extraordinarily active in how do we drive out internal efficiency without compromising quality. And there's been plenty written and spoken about in the media. And that's a very, very active conversation here, even within the CTO office as well as within development teams. And then there's what do we deliver to customers, which is a very different thing. We will -- the increase in the cost base within engineering is -- we are trying to moderate. But at the same time, when we look at the opportunity that we've got as a business, it's kind of -- you need to have one eye on growth as well. And a good example would be there's some things we need to get done to deliver build in Victoria. My attitude to that is we've got to do what we've got to do to make sure that we address that market opportunity. And I'm not going to save $0.5 million and look at us. We've done a good job of not growing the cost base, but we've missed out on the market opportunity. And so it's a case of just tempering those 2 things, I think. We are very deep in terms of what AI isn't delivering in terms of efficiency within engineering. And perhaps we hadn't -- I don't want to AI wash a profitability exercise or a downsizing of engineering saying we can do it far more efficiently because of that. I would say across the business, our view is how do we accelerate our road maps with AI. There's no other way to put it.

The next question is from Jules Cooper.

Can you hear me okay?

We can.