Xero Limited · ASX:XRO
Xero — FY2019 Earnings Presentation
36 slides from Xero's earnings presentation, May 16, 2019
Slide 1: Investor briefing: Full year results to 31 March 2019
Investor For personal use only briefing Full year results to 31 March 2019 16 May 2019 Made in Metal | Waikato, NZ 1
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). For personal use only Information in this presentation: • is for general information purposes only, and is not an offer or invitation for subscription or purchase
Slide 3: Agenda
Agenda Business Financial Outlook Q&A update results For personal use only Steve Vamos Kirsty Godfrey-Billy CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER 3
Slide 4: Business update
Business For personal use only update Steve Vamos CHIEF EXECUTIVE OFFICER Sidonie Warren | London 4
Slide 5: Our purpose and our mission
OUR PURPOSE IS OUR MISSION IS For personal use only “ “ Make life better for Rewire the world of people in small small business, business, their making it seamless, advisors and simpler and smarter communities around the world 5
Slide 6: Annualised monthly recurring revenue growth
638m $ 154m $ For personal use only added in 12 months Annualised monthly recurring revenue Mar 11 Mar 19 6
Slide 7: Free cash flow as % of revenue
Free cash flow as % of revenue 1 For personal use only 10% 1.2% 0% FY15 FY16 FY17 FY18 FY19 -10% -20% -30% -40% -50% -60% -70% 1 See glossary for definition 7
Slide 8: Subscribers added
432,000 1,818,000 For personal use only added in 12 months subscribers Mar 08 Mar 19 8
Slide 9: Global growth and major cash flow milestone
Global AMRR FREE CASH FLOW growth and $638.2m $6.5m For personal use only major cash + 32% YOY (32% in constant currency1) + $35.0m YOY flow milestone SUBSCRIBERS ARPU 1.8m $29.25 + 432,000 YOY + 0.4% YOY (0.8% in constant currency1) OPERATING REVENUE EBITDA EXCLUDING IMPAIRMENTS $552.8m $91.8m 1 Se
Slide 10: FY19 progress
Drive cloud Grow small Building FY19 accounting business for global Progress For personal use only platform scale and innovation • On average, 1,000 • More than 700 connected • Continuing to scale subscribers joined Xero apps in the ecosystem, while building every day in FY19 backed by a community c
Slide 11: Xero Leadership Team
Xero Leadership Team For personal use only Steve Vamos Anna Curzon Kirsty Keri Gohman Craig Hudson Trent Innes MANAGING DIRECTOR, Godfrey-Billy CHIEF EXECUTIVE OFFICER CHIEF PRODUCT OFFICER CHIEF PLATFORM BUSINESS MANAGING DIRECTOR, NEW OFFICER ZEALAND AND PACIFIC ISLANDS AUSTRALIA AND ASIA CHIEF FI
Slide 12: Australia and New Zealand
Australia and Subscribers 1.08m New Zealand For personal use only 1,200k Australia 800k • 25% subscriber growth YOY to 726,000 subscribers. Revenue growth of 33% YOY (33% constant currency) 400k • Single Touch Payroll legislation introduced, extending coverage to all employers from July 2019. Accele
Slide 13: United Kingdom
United Kingdom Subscribers 463k For personal use only Subscriber growth of 48% YOY to 463,000. New 500k record net subscriber additions over six and 12 month periods (108,000 in H2 2019 and 151,000 in FY19). FY19 performance underpinned by strategic 250k positioning and investment ahead of HMRC’s 1
Slide 14: North America
North America Subscribers 195k For personal use only 48% subscriber growth YOY to 195,000 subscribers. 300k Revenue growth of 39% YOY (33% constant currency). 33% subscriber growth YOY excluding 200k Hubdoc acquisition Community-focused partner strategy continues to 100k show promise with strong upl
Slide 15: Rest of world
Rest of world Subscribers 83k For personal use only 43% subscriber growth YOY to 83,000 subscribers. 100k Revenue growth of 55% YOY (48% constant currency) Asia 50k • Enhanced partnerships with DBS and OCBC, two of Singapore’s largest banks 0k • Announced payment service API integration FY16 FY17 FY
Slide 16: App partners, ecosystem and Xero products
App Partners/ Ecosystem Xero solutions Xero products 700+ connected apps Gusto (US Payroll) Bank feeds Projects Xero >50,000 users of Xero’s API Payroll Hubdoc developer tools Expenses WorkflowMax platform For personal use only For small business Small businesses can manage their day-to-day finances
Slide 17: Growing the small business platform
Growing the small business platform For personal use only Revenue Revenue 128% composition growth YOY Group operating revenue $552.8m 42% 36% 34% Group Core accounting operating revenue Platform revenues1 16% growth 91% WorkflowMax2 Non-recurring3 Core Platform Non- 5% accounting revenues1 WorkflowM
Slide 18: Strategic initiatives
Strategic initiatives For personal use only Acquisitions Hubdoc is a leading data capture service that drives significant productivity improvement for both partners and small business owners Instafile is a tax filing and compliance tool that completes our UK compliance stack and enhances readiness f
Slide 19: Financial results
Financial For personal use only results Kirsty Godfrey-Billy CHIEF FINANCIAL OFFICER X The Mindful Company | Singapore 19
Slide 20: Strong top-line momentum with free cash flow milestone
Strong top-line momentum with significant free cash flow milestone For personal use only Annualised monthly recurring revenue Free cash flow $750m +32% YOY $25m $ 6.5m $0m $500m $-25m $250m $-50m $0 $-75m FY17 FY18 FY19 FY17 FY18 FY19 20
Slide 21: Contribution margins driven by further scaling
Contribution Australia and New Zealand margins driven by For personal use only contribution $300m $ 219m further scaling $200m Australia and New Zealand contribution $100m improved 39% YOY, exceeding revenue trends FY17 FY18 FY19 and highlighting continuing efficiencies and $0m operating leverage In
Slide 22: Positive LTV trends with strong subscriber growth
Positive LTV Total subscriber lifetime value (LTV) trends with strong For personal use only subscriber growth > 1.1b $ added in 12 months March 2019 Progress from March 2018 $ 4.4b ARPU $29.25 Churn % 1.1% $ 3.2b Gross margin 84% LTV per subscriber $2,398 +4%1 1Constant currency based on FX rates 31
Slide 23: Financial performance
FY18 FY19 YOY Financial ($000s) ($000s) change (%) performance For personal use only Total operating revenue 406,659 552,819 36% Gross profit 331,310 461,904 39% Operating revenue growth of 36% YOY (34% constant currency) driven primarily by subscriber Gross margin 81.5% 83.6% +2.1pp growth in all m
Slide 24: Continued gross margin improvement
Continued Gross profit as percentage of revenue gross margin For personal use only 83.6% improvement 85% Gross margin of 83.6% for FY19, +2.1pp over prior year with positive gross margin trends across both Australia and New Zealand and International 80% segments Gross margin improvement powered by i
Slide 25: Positive EBITDA momentum
Positive EBITDA EBITDA margin momentum For personal use only 30% Continued EBITDA momentum over FY19 20% EBITDA margin improved modestly due to $18.6m of impairment costs, relating to costs associated with our change in US payroll strategy and acquisition related costs of $1.3 million, relating 10%
Slide 26: Continued drive for CAC and product efficiency
Continued drive CAC as % of revenue for CAC and For personal use only 70% product efficiency 55% 45% Sales and marketing costs increased at the same rate as the 31% growth seen in subscribers in FY19. 40% Offsetting efficiencies saw a 2pp improvement YOY FY17 FY18 FY19 in CAC as percentage of revenu
Slide 27: First positive free cash flow result
First positive free Movement in net cash position cash flow result For personal use only FY18 FY19 YOY ($000s) ($000s) change Significant milestone passed with first positive ($000s) free cash flow result in FY19 of $6.5m, equivalent to 1.2% of FY19 operating revenues Cash and 20,955 121,527 100,572
Slide 28: Outlook
Outlook For personal use only X Lune | Melbourne 28
Slide 29: Unit economics and track record of value creation
Unit Value of a Xero subscriber For personal use only economics $2,000 Compelling SAAS $1,500 unit economics LTV/CAC and track $1,000 6.0 CAC months 13.6 LTV $2,398 MRR churn 1.10% $500 LTV/CAC 6.0 record of CAC $0 LTV $2,398 $397 $-500 value Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 c
Slide 30: Outlook
Outlook For personal use only 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 Mar
Slide 31: Q&A
Q&A For personal use only X Starward | Melbourne 31
Slide 32: Appendix
Appendix For personal use only X Anywhr | Singapore 32
Slide 33: New IFRS accounting standards
New IFRS 15 Revenue from contracts with customers accounting For personal use only • Xero’s commission costs will be capitalised and expensed over time • This standard also changes the classification and timing of when revenue is recognised standards Xero adopted three new accounting standards from
Slide 34: Impact of new accounting standards
Impact of new accounting standards For personal use only Impact of accounting standard Impact of accounting standard changes on restated FY18 net loss changes on restated FY18 EBITDA $0m $50m 10.8 48.2 -$5m $40m 11.4 -$10m $30m 26.0 -$15m $20m -$20m $10m -$25m (0.7) (24.9) (27.8) 3.6 -$30m $0m Repor
Slide 35: Glossary
Glossary For personal use only 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 a
Slide 36: Beautiful business
For personal use only Beautiful business xero.com/investors