Xero Limited · ASX:XRO
Xero — H1 FY18 Earnings Presentation
46 slides from Xero's earnings presentation, Nov 9, 2017
Slide 1: Investor briefing: Half year results to 30 September 2017
Investor For personal use only briefing Half year results to 30 September 2017 X 9 NOV 2017 Proffer, Wellington
Slide 2: Important notice
Important notice For personal use only This presentation is given on behalf of Xero Limited (NZX/ • may contain information from third parties believed ASX:XRO) (Company number NZ 183 0488, AU ARBN 160 661 183) to be reliable; however, no representations or warranties are made as to the accuracy or
Slide 3: Agenda
Agenda Business Operating Outlook Q&A For personal use only update results 3
Slide 4: Business update
Business For personal use only update Rod Drury Chief Executive Officer and Founder Woodblock Cheese, Brisbane4
Slide 5: Positive EBITDA with continued strong growth
Positive EBITDA with continued strong growth For personal use only POSITIVE EBITDA ACMR SUBSCRIBERS TOTAL LTV OPERATING REVENUE $ 417m 1.2m $ 5.4m $ 2.8b $ 188m + $114m YOY 1 + 337,000 YOY + $1b YOY 38% YOY + $31m YOY 1 Constant currency based on FX rates for the 6 months ended 30 September 2016. In
Slide 6: Next chapter: self-sustained growth
Next chapter: self-sustained growth For personal use only Next chapter Prior years Growth in future to be funded by free cash flows Using investor capital to grow Proving sustainable business model Continuing gross margin and EBITDA improvements Market leading beautiful Global small business platfor
Slide 7: Stand-by bank facility established
Stand-by bank facility For personal use only established $100 million two-year stand-by debt facility established with BNZ and ANZ as part of ongoing risk management Improves overall liquidity position There are no current plans to draw down on the facility 7
Slide 8: Consolidating listing on ASX
Consolidating Increasingly diverse shareholders listing on ASX For personal use only New Zealand based Xero is in the process of consolidating its listing on the ASX, expected Monday, 5 February 2018 Xero will remain a New Zealand domiciled company – headquartered in Wellington – but Oct 12 1 Sep 17
Slide 9: Listed ASX & NZX tech companies by revenue growth and market capitalisation
Listed ASX & NZX tech companies by revenue growth and market capitalisation For personal use only ONE OHE PME LVH ISX DWS FLN PPS PPH MUA CAR ACX TNE XF1 APT MP1 BVS REA ERD RXP RKN IRI DTL LVT BIG ALU KGN ESV NXT OCL 3PL GBT WTC GSW SEK ISU APX MLB Market capitalisation CAT in $AUD at 30 Oct 2017 I
Slide 10: Delivered accelerated product cadence
Delivered accelerated product cadence For personal use only Win accountants Front office Leverage Amazon & bookkeepers applications platform LIFELONG LEARNING XERO EXPENSES PLATFORM HQ APPS 90%+ MACHINE XERO PROJECTS LEARNING ACCURACY1 XERO HQ ASK 1 Invoice account code suggestion accuracy in Octobe
Slide 11: Xerocon events: momentum of global community
Xerocon events: For personal use only momentum of 3,000 global community Melbourne attendees (Sep 17) 2,000 London attendees (Oct 17) “ Stop looking at Xero as a product. Look around it to the 600+ apps. Sold out You can’t compare it to product X-Y-Z because Xero is not a product, Xero is a platform
Slide 12: Operating results
Operating For personal use only results Sankar Narayan Chief Operating and Financial Officer X LBB Projects, Melbourne
Slide 13: Subscribers added: 1,199,000 subscribers
337,000 added in 12 months For personal use only 1,199,000 subscribers Sep 07 Sep 17 13
Slide 14: Annualised committed monthly revenue
$ 114m added in 12 months For personal use only $ 417m Annualised committed monthly revenue Sep 10 Sep 17 14
Slide 15: Financial performance
Financial 1H FY17 ($000s) 1H FY18 ($000s) YOY change performance For personal use only Total operating 137,247 187,797 37% revenue Operating revenue growth of 37% YOY Gross profit 103,405 150,360 45% and 38%1 in constant currency ARPU is stable in H1 without major price Gross margin 75% 80% +5pp inc
Slide 16: Creating significant lifetime value
Creating Total group subscriber lifetime value (LTV) significant For personal use only lifetime value $ 1 billion + added in 12 months September Progress from 2017 March 2017 ARPU $29.00 $ 2.8b CMR churn % 1.11% $ 2.2b Gross margin 80% LTV per subscriber1 $2,306 +9% $ 1.7b 19% increase both in nomin
Slide 17: Increased gross margin
Increased Gross profit as percentage of revenue gross margin For personal use only Gross margin of 80% for H1 FY18, +5pp 85% over prior year Gross margin Gross margin improvements seen since completing AWS migration in H2 FY17 Expect continued improvement of gross margin through economies of scale a
Slide 18: Improved LTV to CAC acquisition efficiency
Improved LTV to CAC acquisition For personal use only 6.3 efficiency 7 CAC months for the group declined to 12.6 in H1 FY18 from 14.6 in H1 FY17 5 Driving more efficient customer acquisition by continued focus on the partner channel and 4 improving digital marketing effectiveness Operating expenses
Slide 19: Continuing scale in product investment
Continuing Product costs including opex and capex as % of revenue 1 scale in product For personal use only investment 60% Launched a wave of significant new products at Xerocon this year 50% Investment targeted towards: • Strengthening platform and leveraging machine learning and artificial intellig
Slide 20: Positive EBITDA margin
Positive EBITDA margin 3% EBITDA For personal use only 20% 0% EBITDA milestone: positive for the first -20% time in H1 FY18 at $5.4m compared to -40% $(25.9m) loss in H1 FY17 -60% EBITDA excl. SBP was $14.0m in H1 FY18, 1 H1 H2 H1 H2 H1 H2 H1 FY15 FY15 FY16 FY16 FY17 FY17 FY18 an improvement of $32.
Slide 21: Positive operating cash flows
Positive Cash outflow 1 as % of revenue operating For personal use only 60% 18% cash flows 40% 20% Positive operating cash flow of $6.1m in 0% H1 FY18, an improvement of $19.4m YOY 6 months 6 months 6 months ended Sep 15 ended Sep 16 ended Sep 17 H1 cash flows are seasonally lower Improvement in Inv
Slide 22: Contribution margins improving
Contribution Australia and New Zealand contribution margins For personal use only $ 70m improving $80m $60m Contribution margins improved 84% YOY for H1 FY18 in ANZ, even with growth $40m investments in the region $20m Moderating investment in international H1 FY16 H2 FY16 H1 FY17 H2 FY17 H1 FY18 se
Slide 23: Australia and New Zealand
Australia and Subscribers 789k New Zealand For personal use only 800k $281maccounting Market leader in small business ACMR 450k New Zealand extending penetration through targeted segments eg. rural advisors and business-to-government initiatives 100k H1 H2 H1 H2 H1 H2 H1 H2 H1 FY14 FY14 FY15 FY15 FY
Slide 24: United Kingdom
United Kingdom Subscribers 253k For personal use only Leading cloud accounting software provider for 300k small businesses 150k Strong subscriber growth with quality revenue growth of 49% – 61%1 in constant currency YOY 0k Working with 45 of the 50 largest accounting firms H1 H2 H1 H2 H1 H2 H1 H2 H1
Slide 25: North America
North America Subscribers 110k For personal use only Moderating investment consistent with slower 120k market adoption of cloud accounting Strengthening accounting partner integrations with focus on lower CAC, lower churn and higher LTV 60k Continued investment in deep bank partnerships – Capital On
Slide 26: Expanding global footprint
Expanding global footprint For personal use only SOUTH EAST ASIA Gaining traction with accounting partners • Over 1,000 attendees at partner training sessions in Singapore and Hong Kong • Launching automated competitor conversion tools Broadening financial partnerships and integrations Continued adv
Slide 27: Outlook
Outlook For personal use only X Garage Society, Hong Kong
Slide 28: Operating efficiencies and cash usage outlook
Operating efficiencies For personal use only Operating metrics are expected to improve in FY18 as the Company drives efficiencies through automation and economies of scale Cash usage Cash usage in FY18 (based on FX rates at 1 April 2017) is forecast to reduce from FY17 Xero is managing the business
Slide 29: Q&A
Q&A For personal use only X Upstairs Circus, Denver
Slide 30: Appendix
Appendix For personal use only X The Floral Atelier, Singapore
Slide 31: Glossary
Glossary For personal use only Subscribers Total lifetime value Subscriber means each unique subscription to a Xero offered LTV is the gross margin expected from a subscriber over the lifetime of that product that is purchased by an accounting partner or an end subscriber. This is calculated by taki
Slide 32: Investor enquiries
Investor enquiries For personal use only Annie Li Investor Relations annie.li@xero.com https://www.xero.com/investors 32
Slide 33: Xero overview
For personal use only Xero overview
Slide 34: Unique platform that connects small businesses and their advisors
Unique platform that connects small businesses and their advisors For personal use only FOR SMALL BUSINESSES FOR ACCOUNTING PARTNERS Xero Xero HQ Using Xero, small businesses can manage Accounting partners can connect their their day-to-day finances with software clients’ data with practice software
Slide 35: Rewire the global economy
Rewire the global economy, connecting millions of businesses to their banks, For personal use only advisors and each other Advisor Accountants / Bookkeepers Business customers Larger businesses Small business employees Financial and government 35
Slide 36: Global ecosystem of 600+ partner solutions
Xero has a global For personal use only ecosystem of 600+ partner solutions 36
Slide 37: Global scale of Xero and platform
Global scale of Xero and platform For personal use only 220 million + bank feed transactions in $ 1.6 trillion + March 2017 transactions recorded in the year to 30 September 20171 180 + countries 1,199,000 Subscribers at $ 320 billion + 30 September 2017 invoiced by subscribers in the 1,853 year to
Slide 38: The power of the Xero platform
The power of the Xero platform For personal use only Global cloud platform connecting the small business economy Built on a single code base optimised for AWS Compelling economics of a single global platform delivers R&D investment efficiencies across multiple geographies A unique comprehensive syst
Slide 39: Xero's accounting channel is a global competitive advantage
Xero’s accounting channel is a global competitive advantage For personal use only 90% of Xero subscribers are connected to an advisor1 1,000,000+ 100,000+ SMALL BUSINESSES ACCOUNTING PARTNERS Connected to an advisor Providing cloud accounting grow net profit 23% faster grow revenue 80% faster Using
Slide 40: TAM potential in a large global unserviced market
TAM potential in a large global unserviced market For personal use only 1 Small businesses Cloud not on cloud 1 Estimated English speaking addressable market based on publicly available data 40
Slide 41: Rapidly evolving competence in machine learning
Rapidly evolving competence in For personal use only machine learning ACCELERATING IMPLEMENTING Realtime management of multiple models, with reinforcement learning Platform migrated to public cloud and deployment EXPERIENCE Proliferation of ML and automation ML integrated with single application in
Slide 42: Beauty of Xero's SaaS model
For personal use only Acquire subscribers economically at scale Beauty Price for value and grow revenue per subscriber of Xero's Grow gross margins SaaS model Retention at scale Generate long-term value 42
Slide 43: Underpinned by a strong margin model
Underpinned by a strong margin model For personal use only Strong long-term margins High gross margin Low cost of retention Common global cloud platform Deep business linkages AWS platform provides low Strong network effects marginal cost for future services Stickiness of small business ARPU expansi
Slide 44: Growth opportunities
Growth opportunities For personal use only As we move beyond accounting Front office applications Back office application Next generation tools for advisors Core accounting Per employee services Small businesses Larger businesses Subscription revenues Finweb and other platform revenues English speak
Slide 45: Leadership team
Sankar Narayan Trent Innes CHIEF OPERATING AND AU MANAGING DIRECTOR For personal use only FINANCIAL OFFICER Anna Curzon Gary Turner UK AND EMEA CHIEF PARTNER OFFICER MANAGING DIRECTOR Tony Stewart Craig Hudson CHIEF PRODUCT, PLATFORM NZ COUNTRY MANAGER AND DATA OFFICER Rod Drury CHIEF EXECUTIVE OFFI
Slide 46: Beautiful accounting software
For personal use only Beautiful accounting software www.xero.com/investors