Slide 1: Investor briefing: Full year results to 31 March 2016
For personal use only Investor briefing FULL YEAR RESULTS TO 31 MARCH 2016 1 12 MAY 2016
Slide 2: Important notice
Important notice For personal use only 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 recomm
Slide 3: Agenda
CEO update For personal use only Financial update Agenda Outlook Q&A 3
Slide 4: CEO update
For personal use only CEO update Rod Drury Chief Executive, Founder 4
Slide 5: Delivering on potential
Delivering on potential For personal use only SUBSCRIBERS New Zealand 186 k Australia 312 k $ 258m United Kingdom 133 k 717,000 ANNUALISED COMMITTED SUBSCRIBERS GLOBALLY* MONTHLY REVENUE North America 62 k New markets 24 k 5 *As at 31 March 2016
Slide 6: Delivered on guidance
Delivered on guidance For personal use only Revenue Cash Operating efficiencies Xero expects FY16 subscription revenue to “Xero is focused on containing its full financial “Operating metrics are expected to “exceed $200m based on average June 2015 year cash outflow to similar levels to Xero’s prior im
Slide 7: SaaS scorecard: what matters
COMMON SAAS BUSINESS EVALUATION CRITERIA WE BELIEVE THESE MATTER TOO For personal use only 5 Acquire subscribers economically at scale 1 Grow subscribers worldwide Increased the LTV/CAC ratio to 4.8. ACMR passed $250m, added $99m ACMR and CMR churn* improved. 242k subscribers in FY16. Value added su
Slide 8: Years of subscriber growth
242k For personal use only 10 years of growth Subscribers (000’s) Subscriber net annual additions FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 8
Slide 9: Execution across the company: total lifetime value
Execution across Total lifetime value For personal use only the company $1.6b Improved all components of LTV growth: $1.5b March 2015 March 2016 Added $685m FY16 Subscribers 475,000 717,000 ARPU $28 $30 $0.8b CMR churn % 1.23% 1.19% $823m Gross margin 70% 76% LTV per sub $1,733 $2,103 $0b FY15 FY16
Slide 10: Financial update
For personal use only Financial update Sankar Narayan Chief Financial Officer 10
Slide 11: Financial performance
Financial H1 FY15 ($000s) H2 FY15 ($000s) H1 FY16 ($000s) H2 FY16 ($000s) For personal use only performance Total revenue 54,295 69,725 92,864 114,196 FY16 operating revenue growth of 67 % exceeds Gross profit 36,279 51,033 68,367 88,812 subscriber growth of 51 %. Gross margin 67 % 73 % 74 % 78 % P&
Slide 12: Continuing quality growth
Continuing quality growth For personal use only Adding revenue at similar rate to subscribers 12 month subscriber growth 12 month ACMR addition 242k $99m 222k $86m Sep 15 Mar 16 Sep 15 Mar 16 12
Slide 13: Improving gross margin
Improving Gross margin and % of revenue For personal use only gross margin $90m Increase in gross margin driven by ARPU 78 % growth and operating efficiencies Opportunities to further increase 74 % $60m gross margin: • AWS full migration planned H1 FY17 – 73 % reduces hosting costs • Economies of scal
Slide 14: Customer acquisition costs as % of revenue
Customer CAC as % of revenues For personal use only Acquisition Costs 80% Improved trend in sales and marketing costs • CAC costs predominantly drive subscriber acquisition delivering future high-margin revenues 73% • Investment in sales and marketing infrastructure to support continued growth Focus
Slide 15: Product investment
Product investment Product costs* as % of revenue For personal use only In deployment stage of two-year platform migration to PaaS – offers step change in 50% costs and innovation capability in the future Investment in security and audit processes to support the financial web 40% Product delivery foc
Slide 16: Comprehensive migration to AWS
Comprehensive migration to AWS For personal use only Unlock the commoditised innovation from PaaS to deliver future competitive advantage 24 MONTHS AGO 12 MONTHS AGO TODAY Discovery Prototype Build Migration Optimise Contract negotiations New deployment model & process Implementation model prototypi
Slide 17: Improving EBITDA margins
Improving EBITDA margins For personal use only EBITDA margin 0% EBITDA margin improvement driven by: • Gross margin increases EBITDA • CAC efficiencies excl. SBP* -20% • Scale benefits in product EBITDA • Improved G&A efficiencies -40% -60% H1 FY15 H2 FY15 H1 FY16 H2 FY16 17 *Employee share-based paymen
Slide 18: Revenue growth funding investment
Revenue growth Cash outflows* and revenue For personal use only funding investment $120m $60m Prudence in balancing cash usage and the growth opportunity Global greenfield opportunities support long $0m H1 FY15 H2 FY15 H1 FY16 H2 FY16 term growth Cash impact from currency movement was an adverse $6.
Slide 19: Key segment achievements
Key segment achievements For personal use only FY15 FY16 Net change Group 475 k 717 k 51 % Subscribers ANZ 341 k 498 k 46 % Growth across segments Int 134 k 219 k 63 % Group $28.00 $30.00 7% ARPU Increase in ARPU highlighting product ANZ $27.80 $29.76 7% value and quality of subscriber base Int $28.
Slide 20: ANZ contribution and International investment
ANZ contribution ( $ m ) Contribution $35m For personal use only margin improving $0m H1 FY15 H2 FY15 H1 FY16 H2 FY16 Growth in ANZ contribution with a 127% increase in H2 over the prior year International investment* ( $ m ) Group contribution margin improved $15 m YoY $0m International investment*
Slide 21: Australia & New Zealand
Australia & New Zealand $178 m ACMR For personal use only $180m Market leader in small business accounting now exceeding 500,000 cloud subscribers $90m $64 m year on year increase in H2 ACMR compared to $51 m year on year increase in H1 $0m Sep 14 Mar 15 Sep 15 Mar 16 Price increases across ANZ with
Slide 22: International: United Kingdom
INTERNATIONAL $46 m ACMR United Kingdom For personal use only $50m The United Kingdom’s leading small business accounting solution* $25m Bank integration with most major banks $0m Successful introduction of payroll for UK Sep 14 Mar 15 Sep 15 Mar 16 subscribers enabling ARPU growth Industry accolade
Slide 23: International: Xero country subscriber velocity
INTERNATIONAL Xero country subscriber velocity North America AU For personal use only NZ Fast growing with over 62,000 subscribers UK Growth curve similar to other markets North America ROW Gradual transition of the US accounting industry to cloud providing time to develop channel Time Growth buildi
Slide 24: International: North America
INTERNATIONAL North America For personal use only Product Distribution Ecosystem & partnerships Xero increasingly winning product reviews Partner adoption increasing across the US Enabling accounting practices with over incumbent solutions large technology partnerships including Improving metrics an
Slide 25: International: South East Asia
INTERNATIONAL South East Asia For personal use only HONG KONG Unfilled demand from small business and accounting partners supports a presence in Asia 2m + PHILIPPINES TAM of small MALAYSIA businesses Single global platform means relatively low marginal cost to enter these new markets SINGAPORE Marke
Slide 26: Outlook
26 For personal use only Outlook
Slide 27: Outlook
Outlook For personal use only Operating efficiencies Cash usage Operating metrics to continue Cash usage in FY17 (based on FX rates at 1 improvement in FY17 as the Company April 2016) is forecast to reduce from FY16. continues to drive efficiencies through Xero is managing the business to cash flow au
Slide 28: Rewiring the small business economy
For personal use only Xero Network Enterprise Connect Connecting small businesses Large businesses automating to each other their supply chains Rewiring the small business economy Financial Web Government Connect Two way connectivity with Banks Connecting small businesses and to automate transaction
Slide 29: Authoritative data source and signals
$ 1 trillion Signals For personal use only transactions processed* Xero is a unique globally True insights into the authoritative data source small business economy How many small businesses are there? When am I likely to get paid? 180+ 700,000+ countries subscribers How many jobs do small businesse
Slide 30: Proving ability to be the global small business platform
Xero is proving its ability to be the For personal use only global small business platform Global greenfield growth potential with a large addressable market Delivering strong growth while improving margins Strong execution across multiple geographies with leadership positions Innovating without leg
Slide 31: For personal use only
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Slide 32: Appendix: definitions
Appendix For personal use only Subscribers 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 ACMR Annualised committed monthly revenue represents monthly recurring revenue at 31 M
Slide 33: Beautiful accounting software
For personal use only Beautiful accounting software www.xero.com