Slide 1: FY24 Annual Results Investor Presentation (Market Release)
MARKET RELEASE FY24 Annual Results Investor Presentation WELLINGTON, 23 May 2024 - Xero Limited (ASX: XRO), in accordance with the ASX Listing Rules, attaches its FY24 Annual Results Investor Presentation. Xero’s FY24 earnings webcast at 10:30am AEST on 23 May 2024 can be accessed at: https://webcas
Slide 2: Xero Limited Investor Briefing
XERO LIMITED INVESTOR BRIEFING 23 May 2024
Slide 3: 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 4: 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 5: Introduction and Summary of Results
INTRODUCTION AND SUMMARY OF RESULTS SUKHINDER SINGH CASSIDY CHIEF EXECUTIVE OFFICER
Slide 6: FY24 results demonstrated our ability to execute towards our future aspirations
FY24 results demonstrated our ability to execute towards our future aspirations Continued our track record of strong revenue growth Delivered profitability and above Rule of 40 outcome Operating Revenue Adjusted EBITDA Rule of 401 $ $ 1,714m 527m 41.0% +22% YOY +75% or $225m YOY +9.1pp YOY (21% in c
Slide 7: Continued our track record of strong revenue growth
Continued our track record of strong revenue growth +14% YOY Revenue ($b) Subscribers (#m) ARPU ($) (+10% CC) $39.29 +22% YOY +11% YOY (+21% CC) 4.16m +10% YOY $1.71b +14% YOY $34.61 +28% YOY 3.74m +7% YOY $1.40b +19% YOY $31.36 3.27m -2% YOY +29% YOY $29.30 $1.10b +20% YOY +18% YOY 2.74m $0.85b Del
Slide 8: Strong revenue growth performance in ANZ
Strong revenue growth performance in ANZ $970M REVENUE (+22% YOY, 22% YOY constant currency) ● Australia: Continued strong revenue growth ○ Strong growth delivered with a better balance between subscribers and ARPU, reflecting the value of our products 2.38M SUBSCRIBERS (+11% YOY, 243k net additions
Slide 9: Revenue growth momentum continues in International markets
Revenue growth momentum continues in International markets $744M REVENUE (+24% YOY, 20% YOY constant currency) ● UK: Continued strong revenue growth and pleasing subscriber outcomes in a period where there were no MTD tailwinds ● North America underlying momentum strong 1.8M SUBSCRIBERS (+11% YOY, 1
Slide 10: FY24 investment in product to support future growth
FY24 investment in product to support future growth Step change in product velocity delivered in FY24, with development tightly aligned to the 3x3, while modernising Accounting Payroll Payments Boosted US direct bank feed quality and Streamlined setup and onboarding Announced partnership with Bill f
Slide 11: Delivered a Rule of 40 outcome
Delivered a Rule of 40 outcome; in line with commitment to balance growth with profitability Adjusted EBITDA ($m) Free cash flow ($m) & margin (%) Rule of 40 (%) Revenue growth CC (%) +75% YOY Free cash flow margin (%) $342m 41% $527m 20.0% 32% 30% +45% YOY 21% 25% $302m +10% YOY +39% YOY $209m $102
Slide 12: We have continued to deliver on our commitments in FY24
We have continued to deliver on our commitments in FY24 Our goals Targeting more balanced, More focused Starting on journey to using multiple profitable growth allocation of capital growth levers Our achievements ● Continued strong revenue growth ● Sharpened focus in US, defined areas ● Product mix
Slide 13: Financial Results
FINANCIAL RESULTS KIRSTY GODFREY-BILLY CHIEF FINANCIAL OFFICER
Slide 14: Outcomes consistent with balancing growth and profitability
Outcomes consistent with balancing growth and profitability Key metrics that measure our success Revenue growth (CC) FCF margin FY24: 21.0% FY24: 20.0% FY23: Net subscriber ARPU OPEX ratio LTV / CAC Revenue / FTE additions FY24: $39.29 FY24: 419k FY24: 73.3% FY24: 6.2 FY24: $395k2 +10% CC YOY +11% Y
Slide 15: Broad based revenue growth across our portfolio
Broad based revenue growth across our portfolio Revenue composition1 +22% YOY (21% CC) Core Accounting Platform $1,714m Other 2% +28% YOY -26% • Group operating revenue grew 22% YOY (25% CC) 11% +22% or 21% in constant currency $1,400m • Core accounting revenues grew 24% +29% YOY 3% YOY or 23% in co
Slide 16: Continued strong top-line momentum with more balance between ARPU and subscriber growth
Continued strong top-line momentum with more balance between ARPU and subscriber growth AMRR growth drivers AMRR ($m) Subscriber growth (%) AMRR growth (%) (CC) ARPU expansion (%) (CC) +26% YOY +22% YOY CC 29.9% $1,961m 23.4% 22.0% 18.3% $1,554m 19.3% $1,231m 14.4% 11.2% $964m 20.0% 10.6% 10.8% 9.0%
Slide 17: Strong ARPU expansion, churn remains low
Strong ARPU expansion, churn remains low ARPU movement contributors MRR churn (%) ARPU has increased $4.68 since 31 March 2023 Churn is reported on a percentage of monthly recurring revenue basis. It has remained below pre pandemic levels ARPU at 31 March 2023 $34.61 Long term pre-pandemic2 average
Slide 18: ARPU drivers: Deep dive on platform revenue drivers
ARPU drivers: Deep dive on platform revenue drivers Total payment value1 Employees paid through Planday users3 Xero Payroll2 Indexed to Mar-22 Indexed to Mar-22 Indexed to Mar-22 March growth comparison +30% 13mth to April +7% YoY +8% YoY impacted by timing of Easter with 3 fewer business days in 20
Slide 19: ARPU drivers: Mix in FY25 to be impacted by long idle subscriptions
ARPU drivers: Mix in FY25 to be impacted by long idle subscriptions Removal of long idle subscribers ● Identified pool of long idle subscribers1 now estimated at between 125k - 175k. The majority are located in the international segment with: ○ 55k - 75k located in North America ○ 40k - 60k located
Slide 20: LTV expansion & LTV/CAC demonstrate consistent value creation
LTV expansion & LTV/CAC demonstrate consistent macro resilient value creation Total LTV over time ● LTV 3 year CAGR 22% for ANZ and 38% for International ● Average subscriber lifetime of 8.5 years +2.1b added YOY ANZ International $15.5b $13.4b $10.9b $7.6b ANZ International Group ARPU $37.97 $41.05
Slide 21: Continued uplift in lifetime value of subscribers
Continued uplift in lifetime value of subscribers LTV movements by driver ($b) Value of a Xero subscriber From 31 March 2023 to 31 March 2024 At 31 March 2024 1.99 0.46 15.53 0.14 1.26 13.42 (1.74) LTV / CAC LTV per 6.2 sub $3,732 CAC per gross add $598 20
Slide 22: Cost to serve well managed, margins improved
Cost to serve well managed, margins improved Gross profit ($m) Gross margin (%) +24% YoY Gross profit increased by $289m or 24% YOY, more than the 22% growth in revenue. This resulted in a 0.9pp increase in gross profit margin reflecting the use of advanced $1,511m technology and hosting optimisatio
Slide 23: Reinvesting in line with our FY25-27 strategy to support revenue growth
Reinvesting in line with our FY25-27 strategy to support revenue growth Operating expenses as a % of operating revenue Met FY24 OPEX to operating revenue guidance FY25 OPEX to operating revenue 7.4pp reduction in ratio in line expected to be around 73% with guidance 84.0% 80.7%1 73.3% ~73% 1. Exclud
Slide 24: Restructure improved efficiency across all functions
Restructure improved efficiency across all functions Sales & marketing as a Product design & development General & administration % of revenue as a % of revenue as a % of revenue 31.6% 10.8% 30.7% -2.1pp -1.2pp -4.3pp 31.2% 33.6% Excluding Xerocon Gross product spend Sales and marketing costs increas
Slide 25: Progress on key metrics reflected in Adjusted EBITDA performance
Progress on key metrics reflected in Adjusted EBITDA performance Margin expansion across operating expenses reflects benefits of restructuring in early FY24, with average Movements in EBITDA margin (%)1 FTE down 12% YOY Adjusted for certain non-cash, revaluation and other accounting adjustments incl
Slide 26: Strong free cash flow, supporting Rule of 40 outcomes
Strong free cash flow, supporting Rule of 40 outcomes Movements in free cash flow ($m)1 Continued benefit of high rate environment on $1.5b 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 $311m $7m $342m $40m $36m ($118m)
Slide 27: Strong balance sheet with total liquid resources of $1.5 billion
Strong balance sheet with total liquid resources of $1.5 billion Movement in net cash position ● FY23 FY24 Δ YOY ● Net cash position grew $324 million YOY reaching ($000s) ($000s) ($000s) $422 million at 31 March 2024, reflecting strong free cash generation Cash and cash equivalents 230,624 498,791
Slide 28: Strategic Themes
STRATEGIC THEMES SUKHINDER SINGH CASSIDY CHIEF EXECUTIVE OFFICER
Slide 29: Xero FY25–27 strategy
Xero FY25–27 strategy Winning on purpose Winning Living our Purposefully solutions for purpose allocating our customers consistently capital 28
Slide 30: 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 31: Our areas of focus for FY25–27
Our areas of focus for FY25–27 80% 20% A Winning GTM Focused Bets to Win the 3x3 Unleash Xero(s) to Win Playbook Win the Future Complete the three critical Product, pricing and Evolve customer experience Deliver a purpose and jobs in the three largest packaging to increase through AI and mobile perf
Slide 32: We continue to progress our strategic priorities & purposefully allocate capital
We continue to progress our strategic priorities & purposefully allocate capital Focused Bets to Win the Win the 3x3 A Winning GTM Playbook Unleash Xero(s) to Win Future ● Embed partnership with ● Launched simplified ● Restructured Canada ● Diya Jolly promoted to Deputy in Australia1 product package
Slide 33: Priority product areas of focus for FY25 aligned to our strategy
Complete three critical Priority product areas of focus for FY25 jobs in three largest markets aligned to our strategy Strengthen tax capabilities in UK, localise & Accounting support core needs in the US, and enhance bulk tools / insights Continue to reduce friction for Payments onboarding, increas
Slide 34: FY25 Outlook
FY25 Outlook Total operating expenses as a percentage of revenue is expected to be around 73% in FY25, and compared to FY24, product design and development costs as a % of revenue is expected to be higher 33
Slide 35: 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 36: Wrap up of FY24 Key Themes
Wrap up of FY24 Key Themes FY24 results demonstrated our ability to execute towards our future aspirations We are delivering on our commitments We continue to progress our strategic priorities and purposefully allocate capital Focused strategy to “Win on Purpose” positions us well for FY25-27 35
Slide 37: Appendix
APPENDIX
Slide 38: New Australian product ladder supports our multiple growth levers
New Australian product ladder supports our multiple growth levers Changes will better enable Xero to get customers on the right product at the right time Migration to the new ladder will provide better functionality and value to customers Australian product ladder functionality Ledger Cashbook Ignit
Slide 39: Subscriber growth trend
Subscriber growth trend Closing subscriber balance from H2 FY21 to H2 FY24 +11% YOY +13% YOY 4.16m Australia +14% YOY 3.95m New Zealand +16% YOY 3.74m United Kingdom +19% YOY 3.50m North America +23% YOY 3.27m Rest of World +20% YOY 3.01m 2.74m 38
Slide 40: SaaS metrics summary
SaaS metrics summary ANZ International Group Australia, New Zealand UK, US, CA, ROW Global Total FY21 FY22 FY23 FY24 FY21 FY22 FY23 FY24 FY21 FY22 FY23 FY24 ARPU $31.23 $32.00 $34.24 $37.97 $26.74 $30.53 $35.10 $41.05 $29.30 $31.36 $34.61 $39.29 CAC months 8.9 8.8 9.1 8.1 22.4 22.9 23.3 22.4 14.8 15
Slide 41: Limited impact from impairments & exits on Adjusted EBITDA
Limited impact from impairments & exits on Adjusted EBITDA FY23 FY24 FY23 FY24 Δ YOY ($000s) ($000s) ($000s) ($000s) (%) EBITDA 158,399 497,418 Total operating revenue 1,399,884 1,713,767 22% Cost of revenue (177,943) (202,505) 14% Add back: restructuring costs 34,692 3,013 Gross profit 1,221,941 1,
Slide 42: Financial performance
Financial performance H1 FY22 H2 FY22 FY22 H1 FY23 H2 FY23 FY23 H1 FY24 H2 FY24 FY24 Total operating revenue 505,703 591,116 1,096,819 658,512 741,372 1,399,884 799,547 914,220 1,713,767 Gross profit 440,417 517,014 957,431 572,912 649,029 1,221,941 699,790 811,472 1,511,262 Gross margin 87.1% 87.5%
Slide 43: 2024 Exchange rates
2024 Exchange rates Full year ended/ as at 31 March 2024 2023 Average rate Closing rate Average rate Closing rate NZD / AUD 0.927 0.915 0.912 0.934 NZD / CAD 0.822 0.805 0.825 0.847 NZD / EUR 0.562 0.552 0.599 0.574 NZD / GBP 0.485 0.473 0.518 0.505 NZD / SGD 0.820 0.805 0.857 0.831 NZD / USD 0.610
Slide 44: 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 45: 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 46: 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 45