Objective Corp’s Turnaround Challenge

Small Caps | 11:00 AM

Confidence has been eroded following an exceptionally tough period for Objective Corp, but can management turn the tide?

• SaaSpocalypse and contract losses have hit the Objective Corp share price hard
• Management issued disappointing FY27 ARR and earnings guidance
• Might customer churn fall-out be obscuring a valuable AI opportunity?
• Management remains confident "Objective will win in an AI world"

By Mark Woodruff

Australian government-focused enterprise software provider Objective Corp ((OCL)) has lost more than -70% of its value since around this time last year.

Negative news flow included the non-renewal of a 26-year contract with the Department of Defence, the loss of a second legacy services contract with the National Heavy Vehicle Regulator, annual recurring revenues (ARR) going backwards, and the need for higher spending on sales and distribution.

On a macro level, the accelerated development of artificial intelligence has led to an across-the-board derating of SaaS service providers, such as Objective, as investors can no longer be confident about the long-term survival of existing business models.

But could this be only one part of the story?

Post the release of FY26 results, some analysts are suggesting all of the above combined has by now created an opportunity for investors with a firm eye on the future rather than on the past.

Management at the software services provider has listed a number of reasons “why Objective will win in an AI world”.

The company is well placed to prosper in this new environment because its software sits at the intersection of trusted data, specialised domain knowledge and mission-critical government workflows.

Unlike generic AI tools, Objective’s model-agnostic platform can deliver secure and auditable answers from governed information accumulated over decades, while preserving the human oversight demanded by public-sector and regulated customers.

Its sovereign data management, defence-grade security and deeply embedded systems create meaningful barriers to entry, while AI-enabled automation is expected to strengthen customer productivity, increase product value and provide opportunities for usage-based revenue growth.

Highlighting Objective ‘s long history of reliable revenue growth, strong margins and cash flow, Morgans believes management has a clear strategy to capitalise on AI adoption across government and regulated industries.

Successful execution is expected to support stronger sales momentum.

The business

Objective specialises in enterprise content management (ECM) for government and highly regulated industries across A&NZ and the UK.

The company develops, installs and supports proprietary software covering document and records management, imaging, workflow automation, regulatory compliance, collaboration and the planning, building and approval of construction projects.

Customer churn

While Objective’s FY26 result was broadly in line with market expectations, Morgans highlights further disappointment resulted from the loss of yet another legacy contract, reducing annual recurring revenue (ARR) by an additional -$3.2m.

Morgan Stanley considers FY26 ARR of $114m, after foreign-exchange movements and discontinued contracts, a meaningful miss against management’s year-earlier outlook of $138m.

Excluding customer churn and currency movements, ARR grew 7%, below the 15% target issued in August 2025 and the revised 10%-14% range provided in February 2026.

Moelis explains users of secure file-sharing and collaboration platform Objective Connect have also been lost because of the previous absence of SharePoint connectivity, which has since been added.

It’s thought the concentration of these losses has weighed on investor confidence.

Conversely, Moelis believes Objective’s relationship with the Department of Climate Change, Energy, the Environment and Water (DCCEEW) provides scope to expand its engagement across the department’s numerous agencies.

Underlying software-as-a-service (SaaS) still achieved growth, Moelis points out. The achievement of several strategic milestones (including the launch of Build Australia) is also considered key to ARR momentum and the outlook from FY27.

Operating revenue rose 9.6% to $131.6m, despite ARR declining -2.5% to $117.3m, while underlying operating costs excluding research and development (R&D) increased 8% to -$57m.

Total R&D expenditure rose 8% to -$33.8m, equivalent to 25.6% of revenue, with around 52% capitalised.

Guidance

Following the customer-related ARR losses, Objective has withdrawn FY27 ARR guidance and instead expects adjusted earnings (EBITDA) of at least $40m, down -22% year-on-year.

Shaw and Partners explains this slippage reflects the lower opening ARR base and modest incremental investment.

Management intends to maintain investment during FY27 to capitalise on identified market opportunities.

Based on ARR, Morgans forecasts FY27 revenue of around $128m-$129m, down -2%, while continued investment sees a deterioration in operating costs of around -10%.

This implies to the broker an FY27 earnings (EBITDA) margin of approximately 31%-32%.

Importantly, Shaw notes FY27 guidance assumes sales broadly replicate FY26 levels and includes no Defence revenue, leaving identifiable upside.

Years of research and development (R&D) investment have produced a mature product portfolio, this analyst notes, allowing management to shift focus towards sales and monetisation.

Shaw views FY27 as a reset year, but believes the new earnings base is well supported.

Stronger sales execution is seen as critical to restoring growth.

What’s needed for a share price turnaround?

Apart from conversion of growth opportunities, Moelis suggests a market re-rating will depend on management demonstrating it can retain customers and outperform competitors.

One way to inject confidence is to restore growth ambitions through successful Objective Build deployments at new councils.

Officially released in Australia this April, Objective Build (which addresses planning requirements) has been deployed at North Sydney Council, with significant potential to sell the platform across the company’s existing base of more than 250 Australian local government authority customers.

However, it’s noted lengthy council budget-approval processes are extending the sales cycle.

Management noted Objective Build strengthened its position as the leading build consent platform in New Zealand during the financial year.

Management could also foster growth via renewing sales momentum for (emerging) Objective Connect, validation of the emerging Objective Information Intelligence strategy and broader customer wins.

According to Shaw, “the products are ready; now Objective needs to sell them”.

Information Intelligence is an umbrella platform for managing, protecting and preparing government information for secure use by AI.

The company believes the existing product portfolio has reached an inflection point, with the Information Intelligence Nexus proven at scale, Build commercially launched in Australia and RegWorks V8 offering an effective “regulator in a box”.

Nexus is Objective’s core information and records-management platform for government agencies and regulated organisations. It securely stores, governs and tracks documents, emails and other records, while automating workflows such as ministerial briefings, procurement approvals and freedom-of-information requests.

Its value in an AI world lays in providing governed, auditable and secure information that AI tools can safely retrieve and analyse.

Put simply, Nexus stores and governs records, while Objective Intelligence helps customers use that trusted information with AI.

Management also acknowledges sales execution has historically fallen short, with distribution now presenting a greater constraint than product capability.

Morgan Stanley’s doubts

Morgan Stanley's conclusion is the range of potential outcomes has widened considerably for Objective, while returning to previous growth rates now appears more challenging.

The broker notes management’s outlook omitted the previous 15% ARR growth target, while research and development (R&D) expenditure equivalent to 30% of software revenue and increased sales and marketing investment appear likely in FY27.

This raises questions over whether R&D spending is primarily sustaining the existing portfolio, generating inadequate returns or being undermined by go-to-market execution.

Greater uncertainty around future investment requirements and long-term margins has prompted this broker to adopt more cautious assumptions in its discounted cash-flow valuation modeling.

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