Slide 1: Investor briefing
Investor briefing Full year results to 31 March 2023 18 MAY 2023
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) Information in this presentation: • is for general information purposes only, and is not an offer or • includes statements relating to past performance, which shou
Slide 3: Agenda
Agenda 01 Introduction 02 Financial results 03 Observation 04 Q&A & summary of from new CEO results & outlook Sukhinder Singh Cassidy Kirsty Godfrey-Billy CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER 3
Slide 4: Introduction & summary of results
Introduction & summary of results Sukhinder Singh Cassidy CHIEF EXECUTIVE OFFICER
Slide 5: FY23: Strong operating result drives free cash flow generation
FY23: Strong operating result drives free cash flow generation Financial and operating performance highlights for the year ended 31 March 2023 OPERATING REVENUE ADJUSTED EBITDA FREE CASH FLOW $1,399.9m $301.7m $102.3m + 28% YOY (25% in + $93.0m YOY + $100.2m YOY constant currency) +28% YOY $1.40b 1.
Slide 6: Key Themes
Key Themes FY23 performance Macro resilient business generating strong growth • Strong revenue growth (revenue up 28% YOY, 25% CC) through both net subscriber adds (subscribers up 14% YOY) and Xero’s high value proposition (ARPU up by 10% YOY, 8% CC) Xero has more subscribers than ever and they’re s
Slide 7: Macro resilient business generating strong growth
Macro resilient business generating strong growth Xero is a macro resilient business, generating strong growth through both net subscriber additions and our high value proposition Revenue ($) Subscribers ARPU ($) +10% YOY +28% YOY +14% YOY $34.61 $1.40b 1.5b 4.0m 3.74m 35.0 +19% YOY +7% YOY +29% YOY
Slide 8: Xero has more subscribers than ever and they're staying with us longer
Xero has more subscribers than ever and they’re staying with us longer Total Subscribers Churn Churn has remained consistently below pre-COVID-19 pandemic levels +14% YOY 4.0m 3.74m 1.50% +19% YOY 3.27m 1.13% 3.3m +20% YOY 1.25% 1.10% 1.01% 2.74m 1.10% 0.90% +26% YOY 0.90% 2.5m 2.29m 1.00% Flat YOY
Slide 9: Providing more value for our customers
Providing more value for our customers Examples of product range delivered Evolving our practice management tools Launched Planday for Australian Hosted Xerocons in London, New so we can create a single source of truth small businesses who pay staff Orleans and Sydney for client data across Xero Pra
Slide 10: ANZ: Continued strong progress
ANZ: Continued strong progress Continued progress in subscriber and revenue growth as $798M REVENUE (+26% YOY, 23% YOY constant currency) accountants and bookkeepers drive further adoption • Double digit growth in revenue and subscribers • Strong performance reflects strength of offering in Australi
Slide 11: International: Momentum returned in second half
International: Momentum returned in second half Positioned for the long term opportunity across our international segments $602M REVENUE (+30%YOY, 27% constant currency) • Strong revenue growth and ARPU contribution across UK, North America 1 and ROW • UK H2 FY23 net additions of 76k, above H2 FY22
Slide 12: Growing with efficiency: Improved operating leverage drives increase in operating income margin
Growing with efficiency: Improved operating leverage drives increase in operating income margin Improving efficiency alongside continued revenue momentum drove operating income margin higher. Targeting an operating expense to 1 operating revenue ratio in FY24 of around 75.0%, this will improve opera
Slide 13: Financial results
Financial results Kirsty Godfrey-Billy CHIEF FINANCIAL OFFICER 13
Slide 14: Continued top line momentum reflects macro resilience
Continued top line momentum reflects macro resilience AMRR Gross profit and gross margin Gross margin Gross profit 87.3% $1,553.8m $1,800m $1,250m +26% 87.3% $1,231.1m $1,000m $1,222m $1,350m 86.0% +28% YOY $963.6m $820.6m $750m 85.2% $957m $900m $500m $730m $612m $450m $250m $0m $0m FY20 FY21 FY22
Slide 15: Strong revenue growth from our portfolio of businesses
Strong revenue growth from our portfolio of businesses Revenue composition +28% YOY (25% cc) Core accounting $1,400m Platform +29% YOY Other (30% cc) • Group operating revenue grew 28% YOY or 25% in constant currency +18% YOY $1,097m 3% +44% YOY • Core accounting revenues grew 27% +30% YOY (18% cc)
Slide 16: Core components of platform revenue
Core components of platform revenue Total payment value 1 Planday users 2 Employees paid through Xero Payroll3 +33% YOY 140 140 140 130 130 130 +13% YOY +11% YOY 120 120 120 Indexed to Mar-22 Indexed to Mar-22 Indexed to Mar-22 110 110 110 100 100 100 90 90 90 80 80 80 70 70 70 60 60 60 50 50 50 40
Slide 17: SaaS metrics reflect consistent value creation
SaaS metrics reflect consistent value creation Total LTV over time • LTV 3 year CAGR 33% for ANZ and 38% for International • Average subscriber lifetime of 9.3 years $2.5b added International $15b ANZ 13.4b 10.9b $10b ANZ International Group 7.6b ARPU $34.24 $35.10 $34.61 5.5b $5b Churn 0.68% 1.21%
Slide 18: Continued uplift in lifetime value of subscribers
Continued uplift in lifetime value of subscribers LTV movements by driver Value of a Xero subscriber From 31 March 2022 to 31 March 2023 At 31 March 2023 $3,800 $14b 0.98 0.13 13.40 -0.06 1.61 -0.15 $2,932 $12b $2,064 LTV/CAC 10.90 LTV 6.5 per $1,196 sub $10b $3,587 $328 CAC $551 $8b $-551 GROSS MAR
Slide 19: Higher ARPU, continued low churn
Higher ARPU, continued low churn ARPU movement contributors Churn ARPU has increased by $3.25 since 31 March 2022 Churn has remained consistently below pre-COVID-19 pandemic levels ARPU at 31 March 2022 $31.36 1.40% COVID-19 Price changes 1.13% 1.11% 1.15% 1.01% 0.90% Product mix and other 1 0.88% 0
Slide 20: Balancing cost discipline with long term investment
Balancing cost discipline with long term investment Sales & marketing General & administration Product design & as a % of revenue as a % of revenue development as a % of revenue 50% 33.7% 15% 50% 40% 14% 12.0% 35.0% -3.3pp 40% 30% +1.1pp 13% COVID-19 32.5% -1.1pp 20% excluding 30% Xerocon 11% 42.7%
Slide 21: Strong operating performance
Strong operating performance FY22 FY23 Δ YOY ($000s) ($000s) (%) FY22 FY23 ($000s) ($000s) Total operating revenue 1,096,819 1,399,884 28% EBITDA 212,661 158,399 Cost of revenue (139,388) (177,943) 28% Add back: restructuring costs - 34,692 Gross profit 957,431 1,221,941 28% Add back: Non-cash impai
Slide 22: Strong operating result drives free cash flow generation, EBITDA impacted by impairments and restructuring
Strong operating result drives free cash flow generation, EBITDA impacted by impairments and restructuring EBITDA and Adjusted EBITDA Free Cash Flow Margin EBITDA Adjusted EBITDA 10% +45% YOY $350m $301.7m 7.3% $300m 6.7% 8% +11% YOY $250m +39% YOY Impact of impairments $212.7m to Planday and Waddle
Slide 23: Improved Free Cash flow generation in FY23
Improved Free Cash flow generation in FY23 Movements in Free Cash Flow ($ million) 302.7 (175.8) 240.9 (220.9) Benefit of higher rates on $1.1b of cash and short term deposits, majority of interest expense in P&L non cash in nature 8.9 (57.4) 18.3 3.6 102.3 6.5 (8.8) (70.8) 56.9 Lower supplier payme
Slide 24: Total liquid resources of $1.1 billion
Total liquid resources of $1.1 billion • Net cash position increased by $46.2m YOY to $97.4m at 31 March 2023 Movement in net cash position • Total available liquid resources at 31 March of $1.1bn FY22 FY23 Δ YOY ($000s) ($000s) ($000s) • Change in convertible note carrying value due to USD/NZD exch
Slide 25: Observations from new CEO and Outlook
Observations from new CEO and Outlook Sukhinder Singh Cassidy CHIEF EXECUTIVE OFFICER
Slide 26: Areas to touch on
Observations from new CEO Areas to touch on North America Planday Modernisation Continued confidence that Impairment of $77.9m mainly Continued multi year journey North America is a critical reflects a reduction in market which will help us modernise, market. Xero is providing value valuation multip
Slide 27: Key Themes
Key Themes Observations from new CEO Well positioned for significant long term opportunity • The long term1 opportunity for cloud accounting adoption is significant across our portfolio of businesses (TAM of 45m ) and we are well positioned Multiple levers for growth available to Xero • We have mult
Slide 28: Well positioned for significant long term opportunity
Observations from new CEO Well positioned for significant long term opportunity The long term opportunity for cloud accounting adoption is significant across our portfolio of businesses (TAM of 45m1). We are well positioned and have multiple levers to deliver growth including deepening customer enga
Slide 29: Multiple levers for growth available to Xero
Observations from new CEO Multiple levers for growth available to Xero 1 Key levers: Product mix, attachment DEEPEN ENGAGEMENT and volume of usage ARPU expansion Key levers: Regions, customer segments and channels TAM PENETRATION Subscriber growth 29 1. Chart included is for illustrative purposes on
Slide 30: We will be more disciplined and customer focused in the way we manage resources and capital
Observations from new CEO We will be more disciplined and customer focused in the way we manage resources and capital to grow Being more Being more Being more Being more focused… dynamic… measured… balanced… …on serving our customers …in our short term …and clear on our …Xero will look to “Rule of a
Slide 31: Outlook
Outlook Xero will seek to balance growth and profitability in its approach to capital allocation, subject to investment criteria and market conditions, to drive long-term shareholder value Along with reinvestment in strategic priorities management is targeting an operating expense to operating reven
Slide 32: Evolution of Xero's financial profile
Evolution of Xero’s financial profile LONG TERM EXPENSE RATIO FY23 FY24 EXPECTATION ASPIRATION SALES & MARKETING 33.7% Expected ratio trend vs FY23: Flat to down of revenue PRODUCT DESIGN 35.0% Expected ratio trend vs FY23: Down & DEVELOPMENT of revenue GENERAL & 12.0% Expected ratio trend vs FY23:
Slide 33: Q&A
Q&A Sukhinder Singh Cassidy CHIEF EXECUTIVE OFFICER Kirsty Godfrey-Billy CHIEF FINANCIAL OFFICER
Slide 34: Appendix
Appendix 34
Slide 35: FY23: Strong operating performance; EBITDA impacted by impairments and restructuring
FY23: Strong operating performance; EBITDA impacted by impairments and restructuring Financial and operating performance highlights for the year ended 31 March 2023 SUBSCRIBERS ARPU OPERATING REVENUE OPERATING INCOME 3.741m $34.61 $1,399.9m $57.3m + 470,000 net subscriber + 10% YOY (8% in + 28% YOY
Slide 36: Subscriber growth trend
Subscriber growth trend Closing subscribers from H2 FY20 to H2 FY23 +14% YOY +16% +19% 3.74m Australia +23% 3.50m +20% 3.27m 254k New Zealand +19% 3.01m 242k 384k United Kingdom +26% 2.74m 226k 354k 970k North America 2.45m 201k 339k 2.29m 175k 308k 894k 850k Rest of World 136k 285k 785k 125k 251k 7
Slide 37: SaaS metrics summary
SaaS metrics summary ANZ International Group FY20 FY21 FY22 FY23 FY20 FY21 FY22 FY23 FY20 FY21 FY22 FY23 ARPU $29.83 $31.23 $32.00 $34.24 $30.05 $26.74 $30.53 $35.10 $29.93 $29.30 $31.36 $34.61 CAC months 9.7 8.9 8.8 9.1 18.1 22.4 22.9 23.3 14.0 14.8 15.5 15.9 Churn 0.84% 0.73% 0.66% 0.68% 1.59% 1.4
Slide 38: Financial performance
Financial H2 FY21 H1 FY22 H2 FY22 H1 FY23 H2 FY23 performance ($000s) ($000s) ($000s) ($000s) ($000s) Total operating revenue 438,945 505,703 591,116 658,512 741,372 Gross profit 378,728 440,417 517,014 572,912 649,029 Gross margin 86.3% 87.1% 87.5% 87.0% 87.5% Overview of financial Sales & marketin
Slide 39: Exchange rates
Exchange rates The table below outlines the principal exchanges rates used in the current and prior period Full year ended/ as at 31 March 2023 2022 Average rate Closing rate Average rate Closing rate NZD / AUD 0.912 0.934 0.943 0.929 NZD / CAD 0.825 0.847 0.873 0.870 NZD / EUR 0.599 0.574 0.600 0.6
Slide 40: Glossary
Glossary Churn Liquid resources Churn is the value of monthly recurring revenue (MRR) from Liquid resources comprises cash and cash equivalents, short- Adjusted EBITDA subscribers who leave Xero in a month as a percentage of the total term deposits including proceeds from convertible notes, and undr
Slide 41: Contact
Contact Nicole Mehalski Kate McLaughlin INVESTOR RELATIONS COMMUNICATIONS nicole.mehalski@xero.com kate.mclaughlin@xero.com +61 400 947 145 +64 27 533 4529 41
Slide 42: Beautiful business
Beautiful business xero.com/investors