Slide 1: Investor briefing: Half year results to 30 September 2023
Investor brie ng Half year results to 30 September 2023 9 NOVEMBER 2023 fi
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 o er or • includes statements relating to past performance, which shoul
Slide 3: Agenda
Agenda 01 Introduction 02 Financial 03 Strategic 04 Q&A & summary results themes of results Sukhinder Singh Cassidy Kirsty Godfrey-Billy CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER 3
Slide 4: Introduction and summary of results
Introduction and summary of results Sukhinder Singh Cassidy CHIEF EXECUTIVE OFFICER
Slide 5: H1 FY24: Balancing growth and profitability
H1 FY24 : Balancing growth and pro tability Financial and operating performance highlights for the half year ended 30 September 2023 OPERATING REVENUE EBITDA FREE CASH FLOW $799.5m $206.1m $106.7m +21% YOY (20% in + $97.5m YOY + $91.1m YOY constant currency) +21% YOY 0.9b $800m 120m $106.7m +30% YOY
Slide 6: Key themes
Key themes H1 FY24 performance: Continued revenue momentum and emerging pro tability Continued revenue momentum • Xero has a strong value proposition that continues to deliver strong revenue growth (revenue up 21% YOY, 20% CC) • Outcome re ects a balance of subscriber additions (subscribers up 13% Y
Slide 7: Continued revenue momentum
Continued revenue momentum Xero is a macro resilient business generating strong growth through both net subscriber additions and ARPU expansion Revenue ($) Subscribers ARPU ($) +13% YOY +6% YOY 3.95m $37.38 1.0b 4.0m 38.0 +21% YOY +16% YOY $800m 3.50m +13% YOY 0.8b +30% YOY 3.5m $35.30 $659m +23% YO
Slide 8: ANZ: Strong growth reflects value proposition
ANZ: Strong growth re ects value proposition $456M REVENUE (+21% YOY, 22% YOY constant currency) • Double digit revenue and subscriber growth in Australia • Double digit revenue growth and pleasing subscriber growth for a highly penetrated market in New Zealand 2.27M SUBSCRIBERS (+13% YOY, 139k net
Slide 9: International: Strong revenue growth, factors different by market
International: Strong revenue growth, factors di erent by market • UK continued to deliver strong revenue growth but subscriber growth was subdued due to: $343M REVENUE (+22% YOY, 18% YOY constant currency) - Softness in MTD demand - Accountants and bookkeepers managing undeployed inventory1, which
Slide 10: Emerging profitability
Emerging pro tability Improving e ciency, alongside continued revenue momentum, translated to pro tability and improved free cash ow 1 Net pro t / (loss) after tax ($) Operating income margin Free cash ow margin 20% 20% 15% 13.3% 60m $54.1m 15% 8.4% 10% 40m 10% 3.6% 3.1% 5% 20m 5% 2.4% 1.3% ($5.9m)
Slide 11: Financial results
Financial results Kirsty Godfrey-Billy CHIEF FINANCIAL OFFICER
Slide 12: Continued top-line momentum and gross margin
Continued top-line momentum and gross margin AMRR Gross pro t and gross margin Gross margin Gross pro t $1,769.5m $2,000m $800m 87.5% +19% $1,480.9m YOY 87.0% $640m $700m $1,500m +22% YOY $1,132.5m 87.1% $573m $480m $877.6m 85.7% $1,000m $440m $320m $351m $500m $160m $0m $0m H1 FY21 H1 FY22 H1 FY23
Slide 13: Revenue contribution across our portfolio of business
Revenue contribution across our portfolio of business Revenue composition Core accounting +21% YOY Platform (20% cc) Other +30% YOY $800m • Group operating revenue grew 21% YOY (27% cc) or 20% in constant currency +23% YOY $659m 2.1% -34% YOY • Core accounting revenues grew 24% (26% cc) 10.5% YOY or
Slide 14: Platform revenue drivers
Platform revenue drivers Total payment value 1 Planday users 2 Employees paid through Xero Payroll3 130 130 130 120 120 120 Indexed to Sep-22 Indexed to Sep-22 Indexed to Sep-22 110 110 110 100 100 100 90 90 90 +23% YOY (Sep 22 - Sep 23) +9% YOY (Sep 22 - Sep 23) +10% YOY (Sep 22 - Sep 23) 80 80 80
Slide 15: Continued ARPU expansion, churn remains low
Continued ARPU expansion, churn remains low ARPU movement contributors Churn (MRR) ARPU has increased by $2.77 since 31 March 2023 Churn is reported on a percentage of monthly recurring revenue basis. It has remained below pre-COVID-19 pandemic levels ARPU at 31 March 2023 $34.61 1.40% COVID-19 Pric
Slide 16: SaaS metrics reflect macro resilient value creation
SaaS metrics re ect macro resilient value creation Total LTV over time • LTV 3 year CAGR 31% for ANZ and 40% for International • Average subscriber lifetime of 8.9 years $1.8b added YOY $15b International $14.8b ANZ $13.0b $9.9b $10b ANZ International Group $6.2b ARPU $36.99 $37.91 $37.38 $5b Churn
Slide 17: 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 2023 to 30 September 2023 At 30 September 2023 $4,000 $17b 1.00 (0.63) $2,865 0.07 0.14 14.76 $15b 0.77 13.42 $1,730 LTV/CAC LTV 6.4 per sub $12b $3,742 $595 CAC $581 $10b $-581 GROSS M
Slide 18: Improving operating cost efficiency
Improving operating cost e ciency… FY24 Full Year OPEX to operating revenue guidance FY23 Full Year OPEX to operating revenue guidance achieved1 Along with reinvestment into strategic priorities, management is targeting an operating expense to operating revenue ratio in FY24 of around 75% Operating
Slide 19: …across all areas of our business
…across all areas of our business Sales & marketing General & administration Product design & as a % of revenue as a % of revenue development as a % of revenue 50% 34.7% 15% 50% 40% 14% 12.1% 32.1% -1.6pp 40% 30% 13% -0.4pp -2.9pp 33.9% COVID-19 excluding 30% 20% Xerocon 11% 34.9% including capitali
Slide 20: Strong operating performance
Strong operating performance H1 FY23 H1 FY24 Δ YOY ($000s) ($000s) (%) H1 FY23 H1 FY24 ($000s) ($000s) Total operating revenue 658,512 799,547 21% EBITDA 108,551 206,090 Cost of revenue (85,600) (99,757) 17% Gross pro t 572,912 699,790 22% Add back: Restructuring costs - 2,131 Gross margin 87.0% 87.
Slide 21: Strong free cash flow growth
Strong Free cash ow growth Movements in Free cash ow ($ million) 144.0 (100.0) Bene t of high rate environment on $1.3b of cash and short term deposits. Majority of interest expense in P&L is non cash in nature and does not impact free cash ow 21.3 0.9 106.7 24.5 0.3 Minimal change in cash tax paid
Slide 22: Solid balance sheet with total liquid resources of $1.3 billion
Solid balance sheet with total liquid resources of $1.3 billion Movement in net cash position • Net cash position continued to grow by $155 million YOY reaching $179 million at 30 September 2023 H1 FY23 H1 FY24 Δ YOY ($000s) ($000s) ($000s) • Total available liquid resources at 30 September 2023 of
Slide 23: CEO strategic themes
CEO strategic themes Sukhinder Singh Cassidy CHIEF EXECUTIVE OFFICER
Slide 24: Xero is evolving to deliver on our global aspirations
Xero is evolving to deliver on our global aspirations We are sharpening our focus and adding new capabilities Being more …on serving our customers Xero has multiple levers for growth focused… and adding value for them Key levers: Product mix, attachment Being more …in our short term and volume DEEPE
Slide 25: Strategic key themes
Strategic key themes Sharpening our focus on segments and mix as a key lever for growth • We will focus on balancing mix and subscriber volume to deliver smarter growth US review: Opportunity to be more focused on two key segments with more consistent execution • Highly varied sales and product moti
Slide 26: Sharpening our focus on segments and mix
Sharpening our focus on segments and mix Accountants and bookkeepers support small businesses across the range of Jobs To Be Done (JTBD) Small business 1-2 4+ JTBD Xero product Ledger Cashbook Starter Standard Premium Ultimate ladder Outcome As we grow revenues, we will seek a balance of subscriber
Slide 27: Improving focus on mix by addressing long idle subscriptions
Improving focus on mix by addressing long idle subscriptions • We identi ed a small pool of paid for but long idle1 subscriptions that are no longer expected to deploy in a timely manner. Removing these subscriptions allows us to focus our sales teams and allocate resources to engaging higher value
Slide 28: US review: strong value proposition for two key segments
US review: Shows a strong value proposition for two key segments through targeted execution with a reasonable rate of investment 1 1 What we’ve done less well historically 3 Go forward approach for the US Inconsistent and unfocused execution creating varied • A focused growth plan for our two key se
Slide 29: Evolving our global executive leadership team
Evolving our global executive leadership team Ashley Grech Chief Revenue O cer Ex Square, Recharge NH Kirsty Godfrey-Billy Michael Strickman Chief Financial O cer Chief Marketing O cer Xero - 7yrs Ex Uber, TripAdvisor Ex PwC NH SH Angad Soin NH Chief Business Operations Diya Jolly Chris Patalano & S
Slide 30: AI is already core to Xero; opportunity to invest and experiment
AI is already core to Xero; Opportunity to invest and experiment Focus on the customer, security and trust in every solution we launch — historically and going forward Reduced toil for customers Generative answers in Xero Central • Machine learning embedded in bank reconciliations, document capture
Slide 31: Outlook
Outlook Xero will seek to balance growth and pro tability 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 revenu
Slide 32: Evolution of Xero's financial profile
Evolution of Xero’s nancial pro le LONG TERM EXPENSE RATIO H1 FY24 FY24 EXPECTATION ASPIRATION SALES & MARKETING 34.7% Expected ratio trend vs FY23: Flat to down of revenue PRODUCT DESIGN 32.1% Expected ratio trend vs FY23: Down & DEVELOPMENT of revenue GENERAL & 12.1% Expected ratio trend vs FY23:
Slide 33: Appendix
Appendix 33
Slide 34: US review: strong value proposition for two key segments
US review: Shows a strong value proposition for two key segments We have had varied approaches over a number of years, we now better understand where we o er value 1 What we’ve done less well historically 2 What is working in the business: Inconsistent and unfocused execution has been a key We have
Slide 35: US review: More consistent and targeted execution
US review: More consistent and targeted execution with a reasonable rate of investment 3 Which areas will you focus on to drive growth going forward? • A targeted growth plan for our two key segments in the US: 4 What is your Investment plan? • Small businesses with more JTBD who have greater needs
Slide 36: H1 FY24: Emerging profitability driven by strong growth and improved efficiency
H1 FY24 : Emerging pro tability driven by strong growth and improved e ciency Financial and operating performance highlights for the half year ended 30 September 2023 SUBSCRIBERS ARPU OPERATING REVENUE OPERATING INCOME 3.95m $37.38 $799.5m $67.4m + 204,000 net subscriber + 6% YOY (8% in + 21% YOY (2
Slide 37: Subscriber growth trend
Subscriber growth trend Closing subscribers from H1 FY21 to H1 FY241 +13% +14% Australia +16% 3.95m +19% 3.74m New Zealand +23% 3.50m 267k United Kingdom +20% 3.27m 254k +19% 3.01m 242k 396k North America 2.74m 226k 384k 2.45m 201k 354k 1,010k Rest of World 970k 175k 339k 308k 894k 136k 850k 285k 78
Slide 38: SaaS metrics summary
SaaS metrics summary ANZ International Group FY22 H1 FY23 FY23 H1 FY24 FY22 H1 FY23 FY23 H1 FY24 FY22 H1 FY23 FY23 H1 FY24 ARPU $32.00 $35.56 $34.24 $36.99 $30.53 $34.95 $35.10 $37.91 $31.36 $35.30 $34.61 $37.38 CAC months 8.8 8.7 9.1 8.4 22.9 22.8 23.3 23.5 15.5 15.3 15.9 15.6 Churn 0.66% 0.66% 0.6
Slide 39: Well positioned for significant long term opportunity
Well positioned for signi cant long term opportunity The long term opportunity for cloud accounting adoption is signi cant across our portfolio of businesses (TAM of 45m1). We are well positioned and have multiple levers to deliver growth including deepening customer engagement and driving further c
Slide 40: Financial performance
Financial H1 FY22 H2 FY22 H1 FY23 H2 FY23 H1 FY24 performance ($000s) ($000s) ($000s) ($000s) ($000s) Total operating revenue 505,703 591,116 658,512 741,372 799,547 Gross pro t 440,417 517,014 572,912 649,029 699,790 Overview of nancial Gross margin 87.1% 87.5% 87.0% 87.5% 87.5% performance from Sa
Slide 41: Exchange rates
Exchange rates The table below outlines the principal exchanges rates used in the current and prior period Six months ended/ as at 30 September 2023 2022 Average rate Closing rate Average rate Closing rate NZD / AUD 0.925 0.932 0.904 0.880 NZD / CAD 0.821 0.814 0.815 0.782 NZD / EUR 0.562 0.567 0.61
Slide 42: 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 43: 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 43
Slide 44: Beautiful business
Beautiful business xero.com/investors