Xero Limited · ASX:XRO
Xero — Q2 2025 Earnings Presentation
43 slides from Xero's earnings presentation, Nov 14, 2024
Slide 1: Investor Briefing
XERO LIMITED INVESTOR BRIEFING 14 November 2024
Slide 2: Important Notice
IMPORTANT NOTICE This presentation is given on behalf of Xero Limited (Xero) (ASX:XRO) (Company number NZ 183 0488, ARBN 160 661 183) Information in this presentation: ● is for general information purposes only, and is not an offer ● includes statements relating to past performance, which or invitati
Slide 3: Agenda
AGENDA 01 INTRODUCTION 02 FINANCIAL 03 STRATEGIC 04 Q&A & SUMMARY OF RESULTS THEMES RESULTS SUKHINDER SINGH CASSIDY KIRSTY GODFREY-BILLY CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER
Slide 4: Introduction and Summary of Results
INTRODUCTION AND SUMMARY OF RESULTS SUKHINDER SINGH CASSIDY CHIEF EXECUTIVE OFFICER
Slide 5: H1 FY25 result reinforces our ability to deliver
H1 FY25 result reinforces our ability to deliver Strong revenue growth, with all large markets contributing Continued to deliver a greater than Rule of 40 outcome Operating revenue Adjusted EBITDA Rule of 401 $ $ 996m 312m 43.9% +25% YOY +52% or +$107m YOY +10.3pp YOY (23% in constant currency) 5 1.
Slide 6: Continued our track record of strong revenue growth
Continued our track record of strong revenue growth Revenue ($m) Subscribers (#m) ARPU ($) +15% YOY +6% YOY (+14% CC) Includes impact of Impact from removed long removing 160k long idle (+10% underlying1) idle subscriptions (+11% underlying1) subscriptions $43.08 +25% YOY (+23% CC) +13% YOY 4.19m $1
Slide 7: Strong revenue growth in ANZ
Strong revenue growth in ANZ $567m REVENUE ● Australia: Continued strong revenue growth (+24% YOY, 23% constant currency) ○ Strong growth delivered, continue to see opportunity for new cloud adoption and to offer more services. Early steps in place to 2.47m SUBSCRIBERS1 drive improved product mix (+9
Slide 8: Execution of strategy delivered strong International revenue growth
Execution of strategy delivered strong International revenue growth $429m REVENUE ● UK: Strong revenue growth and continued momentum in subscriber (+25% YOY, 23% constant currency) growth outcomes reflecting continued cloud penetration ● North America: Continued revenue momentum 1.72m SUBSCRIBERS1 ○
Slide 9: Continuing to deliver a greater than Rule of 40 outcome
Continuing to deliver a greater than Rule of 40 outcome as we balance growth with profitability Adjusted EBITDA ($m) Free cash flow ($m) & margin (%) Rule of 401 (%) Revenue growth CC (%) Free cash flow margin (%) 44% +52% YOY $209m 21.0% 33% $312m 29% +65% YOY 27% 23% $205m $107m 20% +25% YOY 13.3%
Slide 10: Financial Results
FINANCIAL RESULTS KIRSTY GODFREY-BILLY CHIEF FINANCIAL OFFICER
Slide 11: Broad based revenue growth across our portfolio
Broad based revenue growth across our portfolio +25% YOY Revenue composition1 (23% CC) Core Accounting $996m Platform +21% YOY 1% -22% Other (20% CC) 11% +28% • Group operating revenue grew 25% YOY $800m +30% YOY or 23% in constant currency (27% CC) 2% • Core accounting revenues grew 25% +23% YOY $6
Slide 12: Continued strong top-line momentum driven by ARPU and subscriber growth
Continued strong top-line momentum driven by both ARPU and subscriber growth AMRR ($m) +22% YOY AMRR growth drivers +21% YOY CC Subscriber growth (%) AMRR growth (%) (CC) $2,164m ARPU expansion (%) (CC) Presented on an underlying basis1 Headline ARPU growth 15% & subscribers 6% $1,770m 23.3% 22.0% 2
Slide 13: ARPU growth continues, early mix improvement demonstrates strategic focus
ARPU growth continues, early mix improvement demonstrates our strategic focus ARPU movement contributors ARPU has increased $3.79 since 31 March 2024 Mix drivers >50% contribution 25% - 0% contribution 50% - 25% contribution Negative contribution ● Majority of mix benefits in the half from one time
Slide 14: 3x3 focus delivering improved payments performance
3x3 focus delivering improved payments performance Total payment value1 Employees paid through Planday users3 Xero Payroll2 Indexed to Sep-22 Indexed to Sep-22 Indexed to Sep-22 +34% Payments revenue growth YoY Lower growth reflects deep +65% YoY reflecting TPV growth penetration in Australia. Ladde
Slide 15: Churn remains below pre-COVID levels
Churn remains below pre-COVID levels MRR churn (%) Churn is reported on a percentage of monthly recurring revenue basis Underlying1 churn (%) Headline churn (%) Long term pre-pandemic2 average - 1.15% 1.13% 1.04% 1.11% 1.01% 0.99% 1.10% 0.94% 0.90% 0.91% 1.00% 0.88% 0.90% Underlying churn excluding
Slide 16: LTV growth reflects strength of underlying business
LTV growth reflects strength of underlying business and focus on value creation LTV movements by driver ($b)1 $1.09b $17.01b $0.06b $0.74b ($0.36b) ($0.05b) $15.53b Group SaaS metrics1 LTV per sub: $4,063 CAC per gross add: $641 CAC months 14.9 LTV / CAC: 6.3 2 2 1. SaaS metrics including LTV, LTV p
Slide 17: Flow through of restructuring and scale benefits
Flow through of restructuring and scale benefits while purposefully allocating capital Sales & marketing as a Product design & development General & administration % of revenue as a % of revenue as a % of revenue 32.0% 10.5% -2.7pp 28.7% -1.6pp -3.4pp 30.1% Excluding Xerocon 33.4% Gross product spen
Slide 18: Key drivers of our cost base reflect strategic priorities
Key drivers of our cost base reflect strategic priorities: investing in people, product and marketing Movements in operating expenses & cost to serve ($m)1 Investment in digital marketing particularly in international markets $18m $819m $81m $18m $732m ($29m) Increased capitalisation rate (up 3.4pp)
Slide 19: Strong free cash flow reflects scale benefits of SaaS model
Strong free cash flow reflects scale benefits of SaaS business model Continued benefit of high rate environment on Movements in free cash flow ($m)1 $2.0b of cash and short term deposits. Majority of interest expense in P&L is non-cash in nature and does not impact free cash flow $189m Reflects high
Slide 20: Balance sheet strength provides financial flexibility
Balance sheet strength provides financial flexibility to pursue opportunity ahead Movement in net cash position ● H1 FY24 H1 FY25 Δ YOY ● Net cash position grew $373 million YOY ($000s) ($000s) ($000s) reaching $469 million at 30 September 2024, reflecting strong free cash generation Cash and cash e
Slide 21: Strategic Themes
STRATEGIC THEMES SUKHINDER SINGH CASSIDY CHIEF EXECUTIVE OFFICER
Slide 22: Winning on Purpose
WINNING ON PURPOSE Purpose Vision WHY WE To make life better for people in small business, To be the most trusted and insightful EXIST their advisors and communities around the world small business platform To be a world class SaaS business ASPIRATION To double the size of our business and deliver R
Slide 23: We are executing our strategy with focus and purpose
We are executing our strategy with focus and purpose Focused Bets to Win the 3x3 A Winning GTM Playbook Unleash Xero(s) to Win Win the Future ● Xerocon London & ● Completed removal of ● Just Ask Xero (JAX) ● Performance goals Nashville highlight long idle subscriptions GenAI tool in beta and managem
Slide 24: Focused investment in 3x3 product areas is delivering
Focused investment in 3x3 product areas is delivering for our customers Accounting Payroll Payments Continued to invest in US and Canada direct UK Payroll manager dashboard in Beta launched for BILL integration bank feed quality and coverage, now over 700 beta for accountants and bookkeepers direct
Slide 25: Syft to enhance reporting and insights capability
Syft to enhance reporting and insights capability Tightly aligned with 3x3 strategy and our M&A criteria delivering best in class capabilities across: ● Forecasting and modelling tools ● Customised reporting, visualisation and benchmarking across industries ● Interactive live view, collaboration bet
Slide 26: FY25 Outlook
FY25 Outlook Total operating expenses as a percentage of revenue is expected to be around 73% in FY25. FY25 product design and development costs as a percentage of revenue are now expected to be broadly similar to FY24 26
Slide 27: Our aspiration
Our aspiration1 We aspire to be a world class SaaS business We believe we have the opportunity to both double the size of our business2 and deliver Rule of 40 or greater performance3,4 As we grow, we will also seek to be more balanced between subscriber growth and ARPU expansion 1. Xeroʼs aspiration
Slide 28: Wrap up of H1 FY25 Key Themes
Wrap up of H1 FY25 Key Themes Strong revenue growth, with all large markets contributing Continued to deliver a greater than Rule of 40 outcome We are executing our strategy with focus and purpose 28
Slide 29: Appendix
APPENDIX ‘y xefo y
Slide 30: Next wave of Making Tax Digital is coming to the UK
Next wave of Making Tax Digital (MTD) is coming to the UK MTD for Income Tax (IT) Enhanced UK product ladder will meet MTD for Income Tax needs Confirmed Implementation in phases (>£50k from Ledger Cashbook Ignite Xero will add IT functionality to Apr 2026, £30-50k from Apr 2027, and Cashbook and al
Slide 31: Removal of long idle subscriptions complete
Removal of long idle subscriptions complete, impact mainly in the International segment Background information ● Long idle subscriptions were those that had been undeployed for more than 24 months and were not expected to be deployed in a reasonable timeframe. These subscriptions were low value and
Slide 32: Subscriber growth trend
Subscriber growth trend +11% YOY +6% YOY Closing subscriber balance from H1 FY22 to H1 FY25 +13% YOY 4.16m 4.19m Australia North America +14% YOY 3.95m New Zealand Rest of World Includes impact of 160k +16% YOY 3.74m 285K 278K long idle subscriptions United Kingdom +19% YOY 3.50m 267K 365K removed d
Slide 33: SaaS metrics summary
SaaS metrics summary 1 ANZ International Group Australia, New Zealand UK, US, CA, ROW Global Total H2 FY23 H1 FY24 H2 FY24 H1 FY25 H2 FY23 H1 FY24 H2 FY24 H1 FY25 H2 FY23 H1 FY24 H2 FY24 H1 FY25 ARPU $34.24 $36.99 $37.97 $41.34 $35.10 $37.91 $41.05 $45.59 $34.61 $37.38 $39.29 $43.08 CAC months 9.1 8
Slide 34: No impact from impairments & exits on adjusted EBITDA
No impact from impairments & exits on adjusted EBITDA H1 FY24 H1 FY25 Δ YOY H1 FY24 H1 FY25 ($000s) ($000s) (%) ($000s) ($000s) Total operating revenue 799,547 995,865 25% EBITDA 206,090 311,698 Cost of revenue (99,757) (110,533) 11% Add back: restructuring costs 2,131 - Gross profit 699,790 885,332
Slide 35: Financial performance
Financial performance H1 FY22 H2 FY22 H1 FY23 H2 FY23 H1 FY24 H2 FY24 H1 FY25 Total operating revenue 505,703 591,116 658,512 741,372 799,547 914,220 995,865 Gross profit 440,417 517,014 572,912 649,029 699,790 811,472 885,332 Gross margin 87.1% 87.5% 87.0% 87.5% 87.5% 88.8% 88.9% Sales & marketing
Slide 36: Cost to serve well managed, operating leverage delivering margin improvement
Cost to serve well managed, operating leverage delivering margin improvement Gross profit ($m) Gross margin (%) Gross profit increased by $185m or 27% YOY, more than +27% YoY the 25% growth in revenue. This resulted in a 1.4pp increase in gross profit margin reflecting scale benefits $885m $700m 88.
Slide 37: Reinvesting in line with our FY25-27 strategy
Reinvesting in line with our FY25-27 strategy to support revenue growth Operating expenses as a % of operating revenue FY25 Full Year OPEX to Operating revenue guidance Total operating expenses as a percentage of revenue is 79.1% expected to be around 73% FY25 expected to be ~73.0% FY24 71.2% 73.3%
Slide 38: Top three super jobs represent ~$100b TAM
Xeroʼs top three super jobs, accounting, payments and 1 payroll, represent ~$100b TAM in AU, NZ, US, UK and CA Rest of World (Xero markets) ~$100b 2 Acct. ($26b) Payroll ($14b) Payments3 ($59b) Other ($39b) Subscriber growth Other Xero markets (US, UK, CA) 22 14 55 Australia & New Zealand 3 <1 4 Acc
Slide 39: Our focus for FY25–27: the 3x3
Our focus for FY25–27: Complete the most critical jobs in the biggest markets, embed key JTBD, and extend even further through the ecosystem and APIs Rest of World The ʻ3 x 3ʼ ($43b SAM1) SMALL 1 Complete the three key JTBD Singapore (accounting, payroll and payments) for SMBs and ABs in our large m
Slide 40: Jobs to be Done
Jobs to be Done Jobs reflect the common tasks that a customer can perform on the Xero platform to run their business. A job does not directly represent a specific product or solution. Some examples are below. XERO PRODUCT AREAS Accounting Payments Payroll Adjacents JOB AREAS Book- Reporting & Invoic
Slide 41: 2024 Exchange rates
2024 Exchange rates Six months ended / as at 30 September 2024 2023 Average rate Closing rate Average rate Closing rate NZD / AUD 0.915 0.918 0.925 0.932 NZD / CAD 0.831 0.858 0.821 0.814 NZD / EUR 0.559 0.568 0.562 0.567 NZD / GBP 0.475 0.474 0.486 0.492 NZD / SGD 0.813 0.812 0.822 0.820 NZD / USD
Slide 42: Glossary
Glossary Adjusted EBITDA Churn Liquid resources Adjusted EBITDA (a non-GAAP financial measure) is provided as Churn is the value of monthly recurring revenue (MRR) from Liquid resources comprises cash and cash equivalents, short-term Xero believes it provides useful information for users to subscrib
Slide 43: Contact
CONTACT Nicole Mehalski INVESTOR RELATIONS nicole.mehalski@xero.com +61 400 947 145 Kate McLaughlin COMMUNICATIONS kate.mclaughlin@xero.com +64 27 533 4529 43