Slide 1: For personal use only
For personal use only
Slide 2: Important notice
Important notice This presentation is given on behalf of Xero Limited. (Company number NZ 1830488, AU ARBN 160661183 NZX/ASX:XRO) Information in this presentation: + is for general information purposes only, and is not an offer or invitation for subscription, purchase, or recommendation of securitie
Slide 3: Agenda
Agenda © Results overview &d° Financial results S® CEO update SR QBA
Slide 4: Results overview
© Results overview Rod Drury Chief Executive, Founder
Slide 5: Executing to deliver margin and growth
Executing to deliver margin and growth 862,000 SUBSCRIBERS GLOBALLY* $3035m ANNUALISED COMMITTED MONTHLY REVENUE* $].7b TOTAL LIFETIME VALUE* (13%) EBITDA MARGIN EXCL. SBP*
Slide 6: Years building momentum
For personal use only 10 years building momentum Subscriber net annual additions Sepo7 Sepos Sepog Sep 10 Sep11 Sep 12 Sep 13 Sep14 Sep15 Sep 16 Subscribers (000’s)
Slide 7: Strong and diversified global presence
Strong and diversified global presence Subscribers* Xero subscribers as % of TAM** Bank linkages Partner channel maturity Global connected platform New Zealand 212,000 (ass, ) SEPTEMBER 15) >30% Developed Developed Australia 380,000 000 SEPTEMBER 15) c.15% Developed Developing United Kingdom 164,000
Slide 8: Execution across the Company
Execution across the Company Improved key underlying drivers of LTV* Total Lifetime Value $1.8b q nia POs from September 2016 «tember 2015 Added $627m*** Subscribers 862,000 +269,000 v ARPU $29.3 +5%"* v $0.9b ACMR churn 14.4% 1.2pp v Gross margin 75% pp v & > O LTV per sub $2,004 416% ** v $0b Sept
Slide 9: Financial results
a" oO + @) Ey Oo Financial results Sankar Narayan ‘ Chief Financial Officer
Slide 10: Financial performance
Financial ‘performance Significant improvement in EBITDA outcomes (even with duplicated platform costs in the transition to AWS) Revenue growth impacted by the strengthened NZD, with a constant currency growth of 55%* Total revenue Gross profit Gross margin EBITDA EBITDA margin Net loss after tax EB
Slide 11: Continuing quality growth
Continuing quality growth Growth momentum in subscribers and ACMR 12 month subscriber additions* 999K 242k 191k Mar15 Sep15 Mar16 Sep16 269k Index *Subscriber net additions Indexed 12 month ACMR growth** 130 120 110 100 ET) Mar 15, Sep 15 Mar 16 Sep 16 **Constant Currency based on March 2014 FX rate
Slide 12: High gross margin
High gross margin Gross margin for the 12 months to September 2016 impacted by the duplicated platform costs in H1 FY17, in the transition to AWS The AWS transition is expected to be completed early H2 FY17, driving further increases in gross margin Significant opportunity to improve margin Cessatio
Slide 13: Improving efficiencies
80% 75% 70% Improving efficiencies CAC* as % of revenue 65% 12 months to Sep 15 12 months to Mar 16 12 months to Sep 16 Product cost** as a % of revenue 40% 35% 30% 12 months 12 months 12 months to Sep 15 to Mar 16 to Sep 16 Customer acquisition L ext
Slide 14: Focus on EBITDA
_ Focus on EBITDA ee é 0% EBITDA includes AWS transition costs in H1 FY17 10% ; — : ; @ EBITDA Continued reduction in EBITDA margin loss with a excl. SBP* H1 FY17 EBITDA excluding SBP of (13%) 20% EBITDA -30% -40% -50% 12 months 12 months 12 months to Sep 15 to Mar 16 to Sep 16 “Employee share-based
Slide 15: Reducing cash usage
Reducing cash usage Operating cash outflow in H1 FY17 reduced to $13.4 million from $23.4 million in H1 FY16 Operating and investing cash outflows in the current period impacted by the one-off transition costs to AWS Operating and investing cash flows declined from $49.5 million in H1 FY16 to $45.8
Slide 16: Key segment achievements
Key segment achievements September 2016 —_Net change Net change (constant currency**) Group 862k +269k Subscribers ANZ 592k +167k Growth across segments Int 270k +102k Operating revenue Group $137.2m 48% 55% Operating revenue impacted by ANZ $96.5m 49% 52% foreign exchange Int $40.7m 45% 61% Segment
Slide 17: Delivering on Guidance
Delivering on Guidance Cash Operating efficiencies FY 17 Guidance Cash usage in FY17 (based on FX rates at 1April 2016) is forecast to reduce from FY16 Xero is managing the business to cash flow break-even within its current cash balance Operating metrics to continue improvement in FY17 as the Compa
Slide 18: Australia & New Zealand
Australia & New Zealand ’ Market leader Widening cloud leadership and continuing to win share from incumbents, with over 590,000 subscribers Churn of <0.7% per month in New Zealand for subscribers on Xero for more than a year Strengthening our accounting channel with >90% of Xero subscriptions attac
Slide 19: International: United Kingdom
INTERNATIONAL 164,000 subscribers** United Kingdom 180,000 The United Kingdom’s leading small business Ug ele) accounting solution* 120,000 >25,000 active UK accountants and bookkeepers 90,000 Xero very well positioned: 60,000 Most directly engaged with UK banks HI FYIS H2 FYI5 HI FYI6 H2 FYI6 HI FY
Slide 20: Significant lead in direct bank partnerships
INTERNATIONAL Significant lead in direct bank partnerships _ United Kingdom The next growth engine Regulatory environment is driving financial services innovation BARCLAYS v he Hee eee” must introduce 2 NatWest Z - HMRC Making Tax Digital: UK tax system goal to be fully digital by 2020 HSBC <> v Rev
Slide 21: International: North America
INTERNATIONAL .~ North America Gaining traction Subscribers grew to 3.5x from two years ago Accounting partner channel Significantly grown accounting channel Selected as accounting platform within top 100 accounting firms - providing confidence in Xero as market challenger Bank connectivity Major in
Slide 22: International: South East Asia
INTERNATIONAL _ South East Asia Strong opportunity in large TAM + 200+ new accounting partners on-boarded in H1 FY17 across the region - 20+ gold and platinum partners Increasing partner attendance at Xero-run partner events Building out key strategic bank partnerships and integrations: UOB Singapor
Slide 23: CEO update
CEO update peste Founder
Slide 24: Globally diverse leadership
Dglassdoor Globally diverse leadership rps be publi ded companies to work for Top 5 CEO of public cloud companies Sankar Narayan Trent Innes - approval rating 98% Chief Financial Officer ‘ MD, Australia Anna Curzon MD, New Zealand Duncan Ritchie Chief Platform Officer Gary Turner MD, United Kingdom,
Slide 25: Management focus: quality growth
25 Subscribers Revenue ARPU Cash Gross margin Operating margin Goal PRIOR YEARS Grow Grow Maintain Manage Pass 1m subscribers Management focus ©@ current Focus Quality growth Grow Grow Break-even Expand Be profitable Pass $1 billion revenue*
Slide 26: Significance of AWS transition
Significance of AWS transition AWS delivers Xero first major cloud accounting provider to re-platform on AWS ; a : Superior customer artificial intelligence and machine learning experiences AWS unlocks automation of small business processes to fundamentally change how small business operates We expe
Slide 27: Continued product leadership
Continued product leadership Bank processing “.. Lwill declare Xero the winner when it comes to working within the Banking page. Xero’s system is more usable, customizeable and accurate.” accountingweB Reporting engine “This change is set to transform the way that accounting related reports are prep
Slide 28: Accounting software people love
Accounting software people love
Slide 29: For personal use only
For personal use only
Slide 30: Appendix
Subscribers ACMR Indexed 12 month ACMR growth ARPU Subscriber retention / CMR churn Lifetime value Appendix Subscriber means each unique subscription to a Xero offered product that is purchased by an accounting partner or an end user and which is, or is available to be, deployed. Annualised committe
Slide 31: Beautiful accounting software
Beautiful accounting software Wwww.xero.com 31