Xero Limited · ASX:XRO
Xero — H1 FY19 Earnings Presentation
34 slides from Xero's earnings presentation, Nov 8, 2018
Slide 1: Investor briefing: Half year results to 30 September 2018
Investor For personal use only briefing Half year results to 30 September 2018 X 8 November 2018 | Hunt & Gather Bee Co. | Waikato
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 Xerocon 2018 | Brisbane 4
Slide 5: 380,000 subscribers added in six months
380,000 1,579,000 added in 12 months For personal use only subscribers Sep 18 Sep 07 5
Slide 6: AMRR growth since September 2010
$ 167m $ 589m For personal use only added in 12 months Annualised monthly recurring revenue Sep 10 Sep 18 6
Slide 7: Strong growth, disciplined execution
Strong SUBSCRIBERS ARPU growth, 1.6m $31.09 For personal use only disciplined + 380,000 YOY + 6% YOY execution AMRR OPERATING REVENUE $589.1m $256.5m + 40% YOY (36% in constant currency1) + 37% YOY (33% in constant currency1) EBITDA OPERATING CASH FLOW EXCLUDING IMPAIRMENTS $34.5m $36.0m 1Constant c
Slide 8: Strategic priorities
Strategic Drive cloud Grow small Building accounting business for global priorities For personal use only platform scale and innovation 8
Slide 9: Xero leadership team
Xero leadership team For personal use only Steve Vamos Anna Curzon Kirsty Keri Gohman Craig Hudson Godfrey-Billy CHIEF EXECUTIVE OFFICER CHIEF PRODUCT AND CHIEF PLATFORM BUSINESS MANAGING DIRECTOR, NEW PARTNER OFFICER OFFICER AND ZEALAND AND PACIFIC ISLANDS CHIEF FINANCIAL OFFICER PRESIDENT OF AMERI
Slide 10: Australia and New Zealand
Australia and Subscribers 981k New Zealand For personal use only 1,000k Australia • 27% subscriber growth YOY to 657,000 subscribers. Revenue 500k growth of 33% YOY (31% constant currency1) • Market leader in small business accounting • In excess of 1 million employees paid through Xero payroll2 0k
Slide 11: United Kingdom
United Kingdom Subscribers 355k For personal use only 40% subscriber growth YOY to 355,000 400k subscribers. Revenue growth of 56% YOY (46% constant currency1) Strong revenue results with MRR growing at 200k 54% YOY (45% constant currency1). Momentum achieved through continued focus on premium produ
Slide 12: North America
North America Subscribers 178k For personal use only 62% subscriber growth YOY to 178,000 subscribers. 200k Revenue growth of 40% YOY (34% constant currency1). 45% subscriber growth YOY excluding Hubdoc acquisition 100k Partner approach continues to deliver early signs of progress in a still signifi
Slide 13: Rest of World
Rest of World Subscribers For personal use only 38% subscriber growth YOY to 65,000 subscribers. Revenue growth of 55% YOY (48% 100k 65k constant currency1) South East Asia 50k • Enhanced partnership with DBS, Singapore’s largest bank • More than 1,000 accountants and bookkeepers attended 0k Asia Ro
Slide 14: Growing the small business platform
Growing the small business platform For personal use only 96% Revenue Revenue composition growth YOY Group operating revenue $256.5m 40% 36% 37% Group operating Core accounting revenue 18% growth Platform revenues1 91% WorkflowMax2 Non-recurring3 Core Platform WorkflowMax2 Non- 4% accounting revenue
Slide 15: Extending the small business platform
Extending the small business For personal use only platform The recent US$300m convertible note issue creates financial flexibility to enhance and extend Xero’s small business platform and ecosystem capabilities through complementary and targeted acquisitions and investments Focus going forward will
Slide 16: Small business platform
Small APP PARTNERS / ECOSYS TEM business For personal use only ERO SOLUTIONS X platform XERO PRODUCTS R ( SYSTEM GE OF ED RE L Small LE CO businesses SING RD) Accountants & Bookkeepers 16
Slide 17: Financial results
Financial For personal use only results Kirsty Godfrey-Billy CHIEF FINANCIAL OFFICER X Nova | Hong Kong 17
Slide 18: Contribution margins reflect scalable model
Contribution Australia and New Zealand contribution margins reflect For personal use only $100m $ 98m scalable model $50m Australia and New Zealand contribution improved 39% YOY, outpacing revenue trends H1 FY17 H1 FY18 H1 FY19 and highlighting continuing efficiencies and $0m operating leverage Inte
Slide 19: Strong top-line and bottom-line performance
Strong top-line and bottom-line performance For personal use only Annualised monthly recurring revenue Cash outflow2 as % of revenue H1 FY17 H1 FY18 H1 FY19 $600m 0% +40% YOY 1 $400m -7.5% (4%) -15% $200m -22.5% $0 H1 FY17 H1 FY18 H1 FY19 -30% 1 36% in constant currency terms based on FX rates at 30
Slide 20: Expanding lifetime value
Expanding Total subscriber lifetime value (LTV) lifetime value For personal use only September 2018 Progress from March 2018 $ 1.1b added in 12 months ARPU $31.09 $ 3.9b Churn % 1.10% Gross margin 83% LTV per subscriber $2,494 +5%1 $ 2.8b 1Constant currency based on FX rates 31 March 2018. 8% increa
Slide 21: Financial performance
Financial YOY H1 FY18 H1 FY19 change ($000s) ($000s) (%) performance For personal use only Total operating revenue 187,837 256,527 37% Operating revenue growth of 37% YOY (33% Gross profit 150,610 212,277 41% constant currency1) driven by subscriber growth in all markets and ARPU increased by 6% YOY
Slide 22: Improving gross margin
Improving Gross profit as percentage of revenue gross margin For personal use only 85% 83% Gross margin of 83% for H1 FY19, +3pp over prior year Gross margin further improved via hosting cost and customer support platform efficiencies 80% Gross margin improvements in both Australia and New Zealand a
Slide 23: EBITDA momentum
EBITDA EBITDA margin excl. SBP and impairments momentum For personal use only 20% Continued EBITDA momentum in H1 FY19 EBITDA impacted by $16.3m of impairment costs relating to the Gusto partnership, $2.3m of costs from the acquisition of Hubdoc and $2.8m from a reduction in capitalisation rates 0%
Slide 24: Further product and CAC efficiencies
Further product Product costs including opex and capex as % of revenue and CAC 1 For personal use only 50% efficiencies 35% 30% Product investment spend has supported launch of further new features that leverage machine 20% learning and automation H1 FY17 H1 FY18 H1 FY19 Further scale benefits extra
Slide 25: Positive operating cash flow trend
Positive operating Total operating cash flow cash flow trend For personal use only $40m $ 36m Operating cash flow of $36.0m for H1 FY19, an improvement of $20.9m from $15.1m in H1 FY18 $30m Total operating and investing outflow for H1 FY19 was $(40.1m) compared to $(30.9m) in H1 FY18 $20m Excluding
Slide 26: US$300m convertible notes offering
US$300m convertible notes offering For personal use only Structure designed to Groundbreaking for New Optimises the capital achieve right balance Zealand and Australian structure of the between costs of funds companies not listed in business: bank loans and potential the US. Call spread drawn at the
Slide 27: Outlook
Outlook For personal use only X BDO Australia | Brisbane 27
Slide 28: Xero will continue to focus on growing its global small business platform
For personal use only Xero will continue to focus on growing its global small business platform Cash outflow (operating less investing cash flows) in the financial year ended 31 March 2019 (FY19) is forecast to reduce from the financial year ended 31 March 2018 (FY18). Excluding capital outlays for
Slide 29: Q&A
Q&A For personal use only X Teance | California 29
Slide 30: Appendix
Appendix For personal use only X Moore Stephens WA | Perth 30
Slide 31: 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 has adopted the following three accounting s
Slide 32: 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 H1 FY18 net loss changes on restated H1 FY18 EBITDA $0m $20m 4.9 15.6 -$5m $15m -$10m 5.3 $10m -$15m 5.4 $5m -$20m (0.1) (19.6) (21.1) 1.6 -$25m $0m Reported IFRS
Slide 33: Glossary
Glossary For personal use only Subscribers Lifetime value (LTV) Subscriber means each unique subscription to a Xero-offered product LTV is the gross margin expected from a subscriber over the lifetime of that that is purchased by an accounting partner or an end-user and which is, subscriber. This is
Slide 34: Beautiful business
For personal use only Beautiful business xero.com/investors