Xero Limited · ASX:XRO
Xero — H1 FY20 Earnings Presentation
35 slides from Xero's earnings presentation, Nov 7, 2019
Slide 1: Investor briefing: Half year results to 30 September 2019
Investor briefing Half year results to 30 September 2019 7 November 2019 Third Drawer Down | AUSTRALIA
Slide 2: Important notice
Important notice This presentation is given on behalf of Xero Limited (Xero) (ASX:XRO) (Company number NZ 183 0488, AU ARBN 160 661 183). Information in this presentation: • is for general information purposes only, and is not an offer or invitation for subscription or purchase of, or a recommendati
Slide 3: Agenda
Agenda Business Financial Outlook Q&A update results Steve Vamos Kirsty Godfrey-Billy CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER 3
Slide 4: Business update
Business update Steve Vamos CHIEF EXECUTIVE OFFICER Moovaz | SINGAPORE 4
Slide 5: Subscribers: 478,000 added in 12 months
478,000 2,057,000 added in 12 months subscribers Sep 07 Sep 19 5
Slide 6: Annualised monthly recurring revenue added in 12 months
$ 175m $ 764m Annualised monthly added in 12 months recurring revenue Sep 11 Sep 19 Sep 11 6
Slide 7: Global growth with strong financial indicators
Global growth AMRR FREE CASH FLOW with strong $764.1m $4.8m financial SUBSCRIBERS + 30% YOY + $14.6m YOY indicators 2.06m + 478,000 YOY OPERATING REVENUE ARPU $338.7m $30.96 TOTAL EBITDA EXCLUDING IMPAIRMENTS LIFETIME VALUE + 32% YOY (33% in $65.9m constant currency1) - 0.4% YOY (- 0.1% in constant
Slide 8: Executing on strategic priorities
Executing Drive cloud Grow small Building accounting business for global on strategic platform scale and priorities innovation !8
Slide 9: Drive cloud accounting
Cloud accounting adoption1 H1 FY20 subscriber additions by geo Drive cloud accounting AU 114,000 ANZ 130,000 >50 % NZ 16,000 Australia and New Zealand UK 73,000 North International America 20,000 109,000 RoW 16,000 <20 % 1Estimated adoption rates across English speaking 0k 30k 60k 90k 120k addressab
Slide 10: Australia and New Zealand
Australia and Subscribers 1.2m New Zealand 1,250k 1,000k Australia 750k • 28% subscriber growth YOY to 840,000 subscribers. 500k Revenue growth of 26% YOY (29% constant currency) 250k • Single Touch Payroll legislation extended to all employers from July 2019, helping to encourage 0k cloud accountin
Slide 11: United Kingdom
United Kingdom Subscribers 51% subscriber growth YOY to 536,000 subscribers 536k 600k HMRC’s Making Tax Digital legislation continued to contribute to performance throughout H1 FY20 400k 56% YOY AMRR growth (57% constant currency) 200k driven by accelerated subscriber additions and ARPU trends. Reve
Slide 12: North America
North America Subscribers 21% subscriber growth YOY to 215,000 subscribers. Revenue growth of 34% YOY (29% constant 300k 215k currency) 200k Community partner strategy showing good progress with more than 40% YOY uplift in partner 100k channel capacity 0k Novo became the first US-based digital bank
Slide 13: Rest of World
Rest of World Subscribers 99k 52% subscriber growth YOY to 99,000 subscribers. 100k Revenue growth of 43% YOY (37% constant currency) 75k Asia 50k • Bank feed integration launched with Hang 25k Seng Bank in Hong Kong, a leading SME bank 0k South Africa H1 FY17 H1 FY18 H1 FY19 H1 FY20 • Great tractio
Slide 14: Our platform strategy
App Partners/ Ecosystem Xero solutions Xero products 800+ apps Stripe Bank feeds Projects Our >50,000 users of Xero’s API (invoice payments) Payroll Hubdoc developer tools Gusto (US Payroll) Expenses WorkflowMax Financial web services Figured (Agri vertical) platform For small business strategy Smal
Slide 15: Driving growth through the platform
Driving growth through the platform H1 FY20 H1 FY20 116% revenue revenue composition growth YOY Group operating revenue $338.7m 32% Group Core accounting operating 29% revenue 20% 19% Platform revenues 1 growth 89% WorkflowMax2 Non-recurring3 Core Platform Non- 6% accounting revenues1 WorkflowMax2 r
Slide 16: So what, now what?
So what, Workflows Human Insights now what? Data is at the heart of Xero Leveraging our machine Data learning and AI capabilities, we can support small businesses to use their data to drive Apps simpler and more seamless workflows and surface powerful human insights Machine Learning AI 16
Slide 17: Progress on workflows and data integrations
Progress on workflows and data integrations Bringing Xero and Hubdoc closer together Marked improvement in the speed and accuracy of data ingestion and coding Looking to bring Hubdoc’s data capture and automation smarts closer to more Xero users Stripe invoice payment integration Small businesses ge
Slide 18: Xero Leadership Team
Xero Leadership Kirsty Team Steve Vamos CHIEF EXECUTIVE OFFICER Anna Curzon CHIEF PRODUCT OFFICER Godfrey-Billy CHIEF FINANCIAL OFFICER Craig Hudson Trent Innes Rachael Powell MANAGING DIRECTOR, NEW MANAGING DIRECTOR, CHIEF CUSTOMER OFFICER ZEALAND AND PACIFIC ISLANDS AUSTRALIA AND ASIA Mark Rees Ni
Slide 19: Social and environmental impact
Social and environmental N V I R O N M EN T E impact Y & I NC Reduce Xero's impact on the environment by offsetting I T L our carbon emissions to zero - Net Zero @ Xero S DIVER US BUSINES Support our employees and the for-purpose sector to ION make a difference in the community Our people S Ambition
Slide 20: Financial results
Financial results Kirsty Godfrey-Billy CHIEF FINANCIAL OFFICER X KARVD Walls | UNITED STATES 20
Slide 21: Maintaining strong top-line momentum with improving free cash flow
Maintaining strong top-line momentum with improving free cash flow Annualised monthly recurring revenue Free cash flow $ 4.8m $800m +30% YOY $5m $600m $-5m $400m $-15m $200m $-25m $0m $-35m H1 FY18 H1 FY19 H1 FY20 H1 FY18 H1 FY19 H1 FY20 21
Slide 22: Contribution margins positive in both segments
Contribution Australia and New Zealand margins positive contribution $ 131m in both segments $150m $100m Australia and New Zealand contribution improved 34% YOY, exceeding revenue growth of 25% YOY due $50m to continued operating discipline and scale benefits H1 FY18 H1 FY19 H1 FY20 $0m Internationa
Slide 23: Significant lifetime value uplift
Significant Total subscriber lifetime lifetime value value (LTV) uplift > 1.4b $ added in 12 months September 2019 Progress from September 2018 $ 5.4b ARPU $30.96 1 Churn % 1.10% $ 3.9b Gross margin 85% LTV per subscriber $2,619 6%2 1 ARPU decreased $0.13 from 30 September 2018 2 LTV per subscriber
Slide 24: Unit economics and track record of value creation
Unit Value of a Xero subscriber economics $2,500 LTV/CAC and track Compelling SaaS $2,000 6.9 unit economics $1,500 CAC months 12.3 record of $1,000 LTV $2,619 MRR churn 1.10% $500 LTV/CAC 6.9 CAC $0 value $382 $-500 LTV $2,619 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 creation Total l
Slide 25: Financial performance
Financial H1 FY19 H1 FY20 YOY change performance ($000s) ($000s) (%) Total operating revenue 256,527 338,658 32% Gross profit 212,277 288,517 36% Operating revenue growth of 32% YOY (33% constant currency) driven primarily by subscriber Gross margin 82.8% 85.2% +2.4pp growth across all markets Sales
Slide 26: Further gross margin improvement
Further gross Gross margin margin 90% improvement 85.2% Gross margin improved by 2.4pp over the prior period to 85.2% for H1 FY20. Both the Australia 85% and New Zealand and International segments saw positive gross margin trends Gross margin improvement powered by efficiencies in cloud hosting and
Slide 27: Continued focus on CAC and product efficiency
Continued focus CAC as % of revenue on CAC and 70% product efficiency 55% 43% Sales and marketing costs increased by 26% YOY which was lower than growth in revenue in H1 40% FY20. This resulted in a 2pp improvement YOY in H1 FY18 H1 FY19 H1 FY20 CAC as percentage of revenue Product costs including o
Slide 28: Strong capital position with positive free cash flow
Strong capital Movement in net cash position position with H1 FY19 ($000s) H1 FY20 ($000s) YOY change positive free cash ($000s) Cash and 21,187 110,898 89,711 cash equivalents Positive free cash flow result in H1 FY20 of $4.8m, equivalent to 1.4% of operating revenues in the Short-term deposits 55,
Slide 29: Outlook
Outlook X Orenda Tribe | UNITED STATES 29
Slide 30: Outlook
Outlook Xero will continue to focus on growing its global small business platform and maintain a preference for reinvesting cash generated, subject to investment criteria and market conditions, to drive long-term shareholder value Free cash flow1 in the financial year to 31 March 2020 is expected to
Slide 31: Q&A
Q&A X Nubian Skin | UNITED KINGDOM 31
Slide 32: Appendix
Appendix X Farmit | NEW ZEALAND 32
Slide 33: SaaS metrics summary
SaaS metrics summary ANZ International Group H1 FY19 H1 FY20 H1 FY19 H1 FY20 H1 FY19 H1 FY20 ARPU $31.95 $31.64 $29.68 $29.98 $31.09 $30.96 CAC months 8.4 8.6 18.2 16.0 12.9 12.3 MRR churn 0.87% 0.82% 1.55% 1.58% 1.10% 1.10% Subscribers 981,000 1,207,000 598,000 850,000 1,579,000 2,057,000 LTV per s
Slide 34: Glossary
Glossary Subscribers Lifetime value (LTV) Subscriber means each unique subscription to a Xero-offered product that is purchased LTV is the gross margin expected from a subscriber over the lifetime of that subscriber. by an accounting partner or an end user and which is, or is available to be, deploy
Slide 35: Beautiful business
Beautiful business xero.com/investors