Straker Advances AI Strategy Amid Revenue Dip, Secures IBM Contract Renewal

Financial Performance and Market Context

Straker Ltd (ASX, STG), a New Zealand-based AI-driven language services provider, has reported its financial results for the first half of FY26, revealing a mixed but cautiously optimistic picture. Revenue came in at NZ$19.3 million, down 15.3% from the prior corresponding period, reflecting softer demand particularly from government clients and traditional enterprise products. Despite this decline, the company maintained a strong gross margin of 66% and delivered a positive adjusted EBITDA of NZ$0.53 million, consistent with its full-year guidance.

The revenue softness was attributed to budget constraints and pricing pressures in government sectors, efficiency-driven volume reductions shared with clients, and attrition in legacy product lines. Geographically, North America showed stable underlying activity excluding some account losses, Europe faced challenges from reduced government volumes but secured new contracts including a significant European Union project, and the Asia-Pacific region experienced modest declines.

Strategic AI Initiatives and Operational Efficiency

Straker continues to pivot towards an AI-led growth strategy, focusing on transitioning customers from legacy language services to next-generation AI products. Central to this is the Verify platform, which integrates AI capabilities directly into production workflows to enhance productivity and customer experience. Although standalone adoption of Verify has been slower than expected, the company is laying important groundwork for future monetisation as client use cases mature.

Another highlight is the creation of Tiri, Straker’s proprietary Small Language Model (SLM), with commercialisation efforts advancing in partnership with IBM. The renewal and expansion of the cornerstone IBM contract, completed shortly after the half-year, notably includes a shift towards AI token-based billing and broadens the partnership beyond localisation services, underscoring Straker’s emerging leadership in this space.

Operationally, Straker has reduced headcount by approximately 11% year-on-year and 5% since the end of FY25, primarily in production roles, while realigning resources geographically to more cost-effective Asia-Pacific locations. This leaner cost structure positions the company to benefit disproportionately when revenue growth resumes.

Cash Flow and Outlook

The company ended the half with a healthy cash balance of NZ$8.7 million and remains debt-free. Operating cash flow was negative NZ$2.5 million, influenced by timing differences in customer payments and refunds, but underlying cash flow was broadly neutral. Straker continues to invest significantly in research and development to accelerate AI innovation and transformation.

Looking ahead, Straker reaffirmed its full-year FY26 guidance of NZ$38–41 million in revenue and positive adjusted EBITDA. The company’s focus remains on managing costs, scaling AI platforms, and capturing value from proprietary technology as it navigates a challenging market environment.