Xero (ASX:XRO) Q2 2027 Earnings Call

0:00 Good morning everyone, I'm Angad Soin, the Managing Director for Australia and New Zealand and our Global Chief Strategy Officer. Welcome to our Pre-Results Customer and Product Showcase. 20 years in and we're still excited about the value we provide to our customers every single day. To bring this to life, we're going to ask our customers, both small businesses and accounts and bookkeepers, to show you how they use Euro to help achieve their goals and aspirations. And after that, we're going to see some of our latest products in action. Our formal results call will follow this showcase, starting at 10.30am Australian Eastern Daylight Time, with our CEO Sukhinder Singh Cassidy and our CFO Claire Bromley. But for now, let's hear from our customers. Sarah Lawrence, who's the founder and CEO of Hot Toast based here in Sydney.

0:47 So Sarah, tell us a little bit about Hot Toast.

0:49 So Hot Toast is an accounting and advisory firm based out of here in Sydney. We've been going for 10 years now. We're a distributed team, very proud B Corp, and we have a real focus on working with clients that are scaling, fast growth, and focused on doing great things in the world. We have been a zero-earning firm for over a decade now. It was the first platform that we put into our tech stack.

1:17 Sarah, so I know when I speak to people like you and many others, zero really changed the game for how you can run a practice. Can you tell me a little bit about that?

1:25 Yeah so it was the first platform that we put into our technology stack and it has given me the flexibility and the lifestyle that I wanted as a business owner and also for my team. So what that means in real time is that I've got team members all up the east coast of Australia that have flexibility and working and we've got clients all across Australia. So it means that we can service them instantly and via the cloud platform in a real tangible way.

1:54 Sarah, can you give us a sense of how does Xero help you run your practice day to day?

1:58 Yeah, so everything from accounts payable to receivable to payroll to reporting, it's like an all-inclusive workflow tool for us. So it's helped us with efficiency, it's helped us connect team, and it's helped us to connect clients as well. And it's been a total game changer for us. My favourite at the moment with Xero are auto bank reconciliation and also smart thought capture. It just gives me time back, gives my team time back and helps us focus on the things that matter in our business.

2:30 Some firms use that time saved to build the lifestyle they want, others reinvest it into new services. What are you doing with that time?

2:38 We're doing a little bit of both. So we're trying to make sure that there's always a bit of a balance at hot toes so that we're focused on getting that balance with the mental as well as also the business. But it's also allowed us to really push into automating those workflows for other clients as well. And we've been able to spin out a whole different service offering for our clients, which has been a really nice value add for not just the clients, but also for our team as well to kind of learn in that space.

3:06 And as we think about the change with AI coming along, automation is a focus for everyone. You just talked about how you're helping your clients. We launched Zero Force not too long ago. Why do you think that this is such a game changer now?

3:22 It's a game changer for accountants because we already sit in the data. So we are naturally that trusted partner for clients and small businesses. So we have a great view of how their business operates from a rhythm perspective, strategic perspective and also from a data perspective. So we're able to kind of get in there, get in the trenches with them and go well how can we build this out from an automation perspective and how can we help you do that and I think honestly we're the best people to do that for them.

3:52 Sometimes you and I talk about new features or functionality we could provide to you or our small business customers and we often hear if Why is that the case? Why would it be better for it to be all run on one platform for you?

4:08 For me personally, I want a product that I can basically optimize my workflows for, not just my own business, but also for our clients as well. Having everything in the same environment, one means it's easier for me to train my team in basically delivering those workflows and doing that advisory work. Privacy and security perspective as well. It's a real focus of mine around being able to use a trusted platform that I know, you know, I know that there's guardrails. I know there's good governance in there. And I know that you guys are always working on building out additional features, which means you're always ahead of the game.

4:46 You talk about trust being critical. In the age of AI, why is trust going to be so important for you? And how do you think Xero is going to help you thrive in that era?

4:54 Yeah, as an accountant it's a non-negotiable for our profession. We have a whole heap of requirements that are on us in terms of privacy and security given the data that we hold and we know that Thanks Sarah, we really appreciate you joining us here today.

5:30 Now I'm here with Khalid Ahmed, the CFO of Encompass Group, a business that's helping customers stay compliant and get ready for AI. Khalid, tell us a little bit about Encompass Group.

5:40 So Encompass is an information governance platform. It's a global SaaS business. We operate four entities across four jurisdictions and I've been using Xero with Encompass for my whole time there, so three years now, but I've been a Xero customer for over 10 years now.

5:58 So Encompass is in lots of different countries around the world, as you just mentioned. Has Xero helped you scale?

6:04 Yes, absolutely. So Xero is our accounting system of record. It provides us with all of that finance functionality that allows me to solve complex business problems while still maintaining all of the integrity that I need out of my finance system. As I mentioned, we operate in multi-jurisdictions, so we have businesses in the UK, the US and Australia. And what Xero allows me to do is run a global finance function with a very lean team and ensure that everything gets done right. As you are aware, accounting is very regulated. There are a lot of standards and there's a lot of compliance requirements. but I have a system that allows me to scale the business and just run it with the peace of mind that I need so I can focus on actually solving a lot of the business challenges that we have as a fast-growing business.

6:53 Just building on that last point, Kylie, so Many companies sometimes think at some point they have to think about an ERP. You're pretty staunch on zeros able to scale with you. Tell us a bit about why.

7:05 I am a very strong advocate of not requiring an ERP if you don't need to move there. I myself have lived through ERP health. I've been in organizations where the business has grown and finance systems have felt like they needed to grow to match that scale of growth. but one of the things that I'm a very very strong advocate for is your general ledger and your finance systems should not be over complicated so by keeping things simple within the finance function what that means is we can have zero as our system of record and then we can have apps that sit alongside zero that can complement all of the processes we need and why that's really great for us is We don't have to have a whole change management exercise every time a new bit of functionality is required to solve a business challenge. But at the same time, as a CFO, it allows me to cherry pick what I need that integrates perfectly with Xero and just works straight

8:05 off the bat. Khalid, you're helping companies adopt AI or get ready for AI. How important is it the way that Xero is building its AI functionality to you as a customer?

8:16 It's very important because we help large organizations get ready for AI and where we see a lot of AI projects stall and fail is they're not ready to make the leap into AI because the data isn't correct or people aren't considering the risks or AI is being built for the sake of having an AI feature and where Xero is complementing us with their AI functionality and with your AI features is It's not AI for the sake of AI. The smart features that are within Xero, so JAX for example, even things like automated bank reconciliation, smart document capture, which are all forms of artificial intelligence, are things that are actually meaningful for us as a customer.

9:04 As I said, it allows us to really cut down a lot of time during the day, but it's also cutting down time in ways that are actually impactful and increase our productivity.

9:16 And the last question, Khalid, you're a CFO. How do you measure the return on investment of using a platform like Xero, both the tangible and intangible?

9:25 Yes, I can start with tangible. And I can start with costs saved by not migrating away from Xero. I've been in my role or in this seat for three years. Three years ago to this day when I started, Encompass, you're a growing business, you need to move on to an ERP. You're multi-entity, multi-currency, hey if you don't move you will bring a lot of risk to the business and you won't be able to scale as fast. There's always a fear of moving to an ERP but by not moving to an ERP we've saved ourselves over a hundred thousand dollars of cost so that is something that's incredibly tangible for us. What's intangible is the value that my team and myself get from using Xero. When we have new starters, the onboarding time is incredibly quick. The intuitiveness of Xero and all of the functionality within it is incredible.

10:25 Having people within a business that can have self-serve payroll, have self-serve expenses, things like that. It's incredibly valuable for us.

10:34 Thanks very much, Colleen. We really appreciate you joining us today.

10:37 It's been my pleasure to be here.

10:39 Now, I'll throw over to Kate, who's speaking to a partner, a member of our accounting and bookkeeping community over the UK.

10:46 Thanks, Angad. Hi, everyone. I'm Kate Hayward, the Managing Director of Xero here in the UK. Ben Knapp is the Chief Operating Officer at Nuvo Accounting. Ben, I would love to hear a little bit about Nuvo to start with.

10:59 Absolutely. So Nuvo is a multidisciplinary professional services firm. We have now 31 offices, 650 team members across the UK. I'm Chief Operating Officer there and part of my remit there is as an acquisitive professional services firm is to kind of build that platform to roll out those procedures and that tech stack into those acquired businesses.

11:22 Amazing and I know you're growing quickly. I know that Xero has been a big part of your journey at Nuvo and probably even before that. Can you tell me a little bit about how Xero has helped you scale the profession and your firm?

11:34 Yeah, absolutely. So I think Xero has been really important to us. As I said, being an inquisitive firm, part of that initial rollout is bringing those businesses together, going through that period of digitization. So sometimes we'll be acquiring those more traditional firms. and working closely with Xero to implement our procedures within those businesses is hugely important and Xero have been great in supporting us through that process. Sometimes we're buying a business that there's not much digitalization that's taking place and Xero are really really helpful in working with us so we've got an implementation team that kind of work with us through that process to bring those people along through that change management and also we have those businesses sometimes that we acquire that are actually more technologically advanced than us and so kind of working with Xero alongside those businesses to see what they're doing how can we adopt that maybe in the wider group as well.

12:23 There's two bits there that I think are really interesting. One part of it is zero that we can get back to, but I think there's something else that we hear a lot from our accounting and bookkeeping community, that we often have our partner consultants that come in and work with your implementation team. I assume you're saying that that is beneficial and helpful, and how does that work for you and your team?

12:41 Yeah, absolutely. Immensely beneficial, immensely helpful. Something maybe slightly more unique, I think, of the vendors that we work with, zero is probably the best at that as well. but for us it reduces kind of the burden within our internal team on our digital transformation team it helps us understand best practices really really well as well and then ultimately people that are really grounded and really knowledgeable on the product can help us roll those out really efficiently to the team so for us it's an absolute dream to have someone come in who understands the product understands what best practice looks like within the industry and help us implement that within the newly acquired business and that'd be helpful

13:19 And if I go back to Xero now, what is it about Xero that has always been there that you love and enjoy and brings you so much efficiency?

13:27 From day one, I always adored using Xero as an accountant. Just doing the bookkeeping transactions work within there was just so much smoother than other platforms available at the time. And then as our business evolved, Xero has also evolved at the same rate as well. There's been huge, huge growth within the product itself and all the new offerings that it's now got has just been fantastic. Yeah, for Nuvo it's been a really, really great partnership so far and we really look forward to taking it further.

13:52 Can you give me any specific examples of some of the new products that you're testing or learning and you're seeing real benefit of?

13:58 Yeah I mean I think the team that I'm aware of either our digital champions team so we have CPUs and digital champions and the digital champions are having a lot of fun at the minute trying to interrogate Jax to try and get out of it as much as possible and just just bringing you know surfacing that that transactional data to make it a lot more user-friendly for those team members is really valuable. and then I hear a lot as well about the automatic bank rec as well so a lot of features in the bank rec have been improved which is really really welcome and then we actually still use Xero as our internal finance function as well so we have sort of various add-ons to that and Xero's marketplace obviously has a great range of tools for us but to consolidate those individual instances of Xero because When we're acquiring a business quite often, often the native solution is zero there.

14:51 So we've got those consolidation tools. And with the kind of Claude plugin as well, we can now kind of just surface that information where we already live within Claude as well. So, yeah, we interact with the data in zero in so many different ways. And I think that's hugely valuable.

15:07 And you picked up a few points there that I think are interesting, both how we are shaping and developing the product and AI within Xero, but also how you can use Xero in other products. As you think about the future for the profession and those automation workflows that we're building, what is it about Xero or just generally how you think about AI and trust and the data? What do you think about them when an accounting and bookkeeping firm looking to push automation throughout your workflows?

15:36 Consistency I think is important. So within AI I think there's a lot of uncertainty around how consistent it will deliver those workflows. So that's really important to us. Grounding so we can understand exactly which data it's using for what and why and why. that's really important to me on the kind of security side and we have to be mindful we're using clients day to day but I think where we can spot those opportunities where our team are kind of previously would have been head down for an hour and we can just make their lives a little bit easier that brings them right along that journey and we've seen some great successes within that you know particularly within the bank reconciliation features and whatnot so yeah fantastic.

16:18 So one thing we're hearing a lot at the moment is there's a lot of small businesses here in the UK and actually times are quite tough. We had the budget a couple of weeks ago and a lot of small businesses want more help. I think what we're hearing from accountants and bookkeepers is some of this automation is allowing them to free up capacity and time. I guess my question to you is, are you seeing that and what's your plan? And do you think you'll be able to support more of your small businesses?

16:41 Absolutely. So it's a really apt question for Nuvo. So part of our vision as we move towards our 2030 vision is around our client NPS and we want to deliver, we want to be kind of a market leader really in client satisfaction and a huge part of that for us we believe is that FaceTime, those phone calls, that human relationship and that connection. particularly as AI is kind of becoming more and more prevalent in the industry I think that that trust that we need to build by having those conversations and those meaningful conversations as well with our clients is immensely valuable and using some of what Xero now offers to automate some of the work that our teams have previously spent a lot of time doing that really allows them to get on the phone more and have those meetings and nip out for coffees with clients and just build those relationships and build that trust I had a conversation recently with someone about about how important the frequency of conversation is how often you should be picking up the phone but I think it kind of goes beyond that we can all pick up the phone have a two-minute conversation with a client but it doesn't mean that much but if we can have deep meaningful conversations with our clients and we have the transactional data from their last month sat right there in front of us that we can interrogate with AI live on that call potentially that allows really really meaningful conversations for our clients and that is what will build the trust keep those small businesses you know with Nuvo and also keep them moving forward understanding their numbers and growing themselves.

18:01 I love that the co-pilot approach of actually using the transactional data but having more in-depth client conversations.

18:06 Absolutely. I think the way that we surface information is changing and that's not going to go back now. and importantly if we can bring that to the fingertips of the people on the phones our partners who are having those meetings and conversations that is so so valuable not just for us as a business but for our clients and helping them grow so really exciting time in the industry I think.

18:25 And for the small business economy here in the UK which is very important.

18:28 The backbone of the economy always has been always will be.

18:30 Ben, thank you so much for taking the time to speak with us today. We really appreciate everything you do for your small business customers and your partnership here with us at Xero.

18:38 Not at all. Thank you for having me. It's always fun to talk about Xero and I look forward to our ongoing partnership together.

18:44 That's all from our customers here today. I really hope you've enjoyed listening to all of them. Now let's head over to see some of our products in action. First, we have SUNY, our ECM of AI products, who will take us through XeroForce. Then we have Akanshu, who's our SVP of product. He'll show us how we're deepening our AI functionality across the Xero platform, including books health and document chasing. Hi, my name is Suni, and I'm the Executive General Manager of AI products at Xero. I lead the dedicated teams of scientists and engineers who build AI products used by our customers every day. For accountants and bookkeepers, Much of your time is spent on tasks that live in between the software that they use. Maybe it's getting data out of Xero, creating and combining a few spreadsheets, emailing a client, and then waiting for replies.

19:38 It's unbillable work, it's manual, and most of all, it's exhausting. And for decades, this has just been accepted as the cost of doing business. Xeroforce, which is currently in beta, was created to bring cutting-edge agentic AI to help solve this problem Xeroforce is a natural language agent builder. It makes it easy for accounting and bookkeeping practices to create agents that complete the workflows that matter to them, all without writing a single line of code. From the moment you enter the product, you can either build an agent from scratch, or you can use one of the pre-made templates that allows you to get an agent up and running in just minutes. But for this demo, let's build one from scratch.

20:26 Accounting practices often send a monthly check-in email to clients with their P&L, some commentary on how the business is going, and a link to book a chat if needed. For one client, that's quite straightforward, but across a whole practice, it's a lot of work to repeat every single month. So to build that agent, we describe what we want, just as we would explain it to someone on the team. So I would type on the second Tuesday of each month, get the P&L from Xero and draft an email to the client summarizing the key numbers. Attach the P&L as a spreadsheet and include a link for the client to book an appointment with me. Now in the background, Xeroforce is solving a little puzzle.

21:15 It looks at our connected tools like Xero, Office 365, Outlook and Calendly. and works out how to put these steps together into a coherent workflow. And because it builds on the same accounting awareness of JAX, it knows to avoid mistakes like graphing the email before pulling the P&L. Before it uses any numbers, it checks that the books are up to date. Okay, it looks like we have our workflow. But before I scribble it, I want to test it out and see what it's going to do. In test run mode, No emails are sent and nothing is permanently modified. We get to review what the agent would have done. Here's our drafted email. There's the commentary, the P&L is attached, and the booking link is included.

22:05 Test mode is designed to allow customers to build confidence in an agent's performance before enabling it. Now as we create more agents, we need to know what they've done. What they're doing and whether any of them need our help. So let's fast forward a couple of weeks. On the activity screen, we can open a workflow run and follow what happened. The checks that an agent made, the financial information it used, and the email it drafted for review. We're not just taking the agent's word for it. We can inspect the work for ourselves. That's the power of zero force. We've described how our practice works and turn that into a repeatable workflow while keeping the ability to review what's been done.

22:57 For the practice, that means less time repeating the same administrative steps and more time talking to clients about what the numbers mean. Xero takes care of the AI so advisors can take care of their clients.

23:14 Hey everyone, my name is Akankshu Dhawan and I am the SVP of Product Creator Zero. I am so excited to preview two new tools for accountants and bookkeepers that will not only make their lives better, it will meaningfully enhance their interactions with their clients. I am going to show you what accountable intelligence looks like inside a real practice by going deeper into two upcoming products, client readiness and document chasing. You can also explore how the accountant, bookkeeper, small business owner, and JAX can work together leading to healthier businesses, cleaner books, and an easier month-end close. So let's get started. I'd log into my account at Zero's Partner Hub and we'd see this newly reimagined books health widget for Fox Love Accounting.

24:05 Right at a glance, I can see three clients assigned to me that are ready. while the rest might need some attention. Let's click the book health button to dive deeper. Here you can see in one clear view all of Fox Club's clients that have already been filtered and assigned to me. I can see their respective health scores and I can see their status for each individual client. Now let's go ahead and click on the health score. This is powered by up to 50 signals and it aims to help accountants and bookkeepers focus on clients that need the most attention at any point of time.

24:50 These are also then neatly categorized across key domains like banking, tax, and even some items that might need attention but are not directly affecting the score yet. JAX is always smartly looking out for you and your clients. and we hear from accountants and bookkeepers all the time that many clients often forget to submit all the documents and sometimes they do need a little nudge. This is a huge percentage of time spent inside firms and they felt it was time to bring some Xero magic to it. So now I'm so excited to be introducing this capability right within Xero's Partner Hub. I can initiate a request for missing documents right next to each client on this list As I can see, for Zeta Coffee, these were all the missing documents above $50, as I've specified above. And if everything looks good, I can go ahead and click Next.

25:48 I can then select how Jack Peters, my client in this case, wants to be reminded. I can set a due date, how often to remind him, and I can also choose his preferred channel. It could be an email, SMS, or in an app, Jack Smudge. And just like that, I've initiated the chase. This has been designed working closely with some of the leading accounting and bookkeeping firms globally. And the reaction has been consistent. This used to be painful, time-consuming work, and it couldn't be more thrilled to see AI agents automating it for them. So they can go back to spending time with more valuable time with their clients, helping their business grow and helping the practice grow. Now let's see Jack's experience on the other side. He gets notified immediately and on his mobile phone he gets a notification that takes him straight into the newly launched JAX experience within Xero's mobile app.

26:40 It'll tell them that there is a thread that needs attention and upon clicking that thread JAX tells JAX exactly what's needed. JAX tells JAX that you can upload an existing document or take a photo using the camera app and JAX takes it from there. It confirms whether the documents are correct and more importantly matches them to the correct transactions. Now I want to switch to the partner hub experience to see what the bookkeeper will experience. They can see the entire conversation in the activity feed and as I said Jax has already gone ahead and processed and matched those documents to the right transactions. I can open any document right here and check it against the transaction. Now I'm so excited to also showcase an upcoming reimagination of the document experience.

27:29 I can see each exact document, but Xero's technology has not only extracted that information, it has matched those entities with the relevant supplied information for a set of coffee. That's the power of Xero's network and the ledger being integrated right into document capture. One seamless experience leading to hours of time saved. Here's the big takeaway. Every connection you just watched Each match document and each successful chase is helping JAX learn and serve its clients better. Fox Club Bookkeeping's JAX becomes sharper and the books are clean. Thank you.

28:11 That's all we have time for in our pre-results showcase. Thank you to everyone for joining us today. Stay with us for the formal results call at 10.30am Australian Eastern Daylight Time with Sukhinder Singh Cassidy, our CEO, and Claire Brumley, our CFO. Thank you.

29:44 Thank you for watching! Thank you for standing by and welcome to the Xero Limited 2027 Interim Results Conference Call. I am joined by Xero's Chief Executive Officer Sukhinder Singh Cassidy and Chief Financial Officer Claire Bramley.

30:29 All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the call over to Sukhinder Singh Cassidy, Chief Executive Officer of Xero. Please go ahead.

30:52 Good morning from Sydney, Australia. Thank you for joining our investor briefing on Xero's financial and operating results for the half year ended the 30th of September, 2026. I'm Sukhinder Singh Cassidy, CEO of Xero, and I'm joined by our CFO, Claire Bramley. We're pleased with our first half of FY27. We're delivering the strong profitable growth at scale we committed to with momentum across regions and progress on our AI vision. Three themes stand out. First, consistent execution of our 3x3 strategy supported by our multi-product platform and operational excellence is driving strong revenue and adjusted EBITDA growth. This is translating into free cash flow growth. Our performance has enabled us to upgrade our FY27 outlook and FY28 aspirations.

31:38 Second, stronger cash generation is strengthening our balance sheet and increasing flexibility. Our disciplined capital allocation supports the up to $1 billion share buyback program we've announced today. Third, we are a trusted AI partner for small businesses, accountants, and bookkeepers. We see that in measurable adoption, clear customer value. Let's look at the headline numbers. I'll cover the key metrics. Claire will take you through the detail later. Operating revenue grew 46% to $1.745 billion. On a performative basis, combining zero and annual for both periods, revenue grew 27% or 22% on a constant currency basis.

32:24 Adjusted EBITDA was $362 million. Up 23% pro forma or 3% reported. Pro forma free cash flow rose 32% to $238 million. On the same basis, our Rule of 40 outcome was 36%, up 1 percentage point. The key takeaway here is that the underlying business is growing strongly and cash conversion is improving. As I said, these results lifted our Rule of 40 to 36% in H1 from 35% a year ago. We expect it to fall below Rule of 40 pro forma as we've brought Melio into the business and aim to get back above it by FY28. We're progressing well and now expect to be around Rule of 40 pro forma by the end of FY27, roughly a year earlier.

33:09 Claire will cover the updated aspirations shortly. I'll now touch on briefly the strategic progress in our three largest markets. In Australia, revenue grew 23% or 17% in constant currency terms. Customers grew 9% with 91,000 net additions, taking us up to 2.2 million. We also launched Xero Ultra for more complex mid-sized businesses, opening a new customer segment and ARPC opportunity. In the UK, revenue grew 24%, or 20% in constant currency terms. We added 85,000 customers, up 16%. Making tax digital for income tax contributed to the growth, supported by Xero Simple. Underlying growth also continued beyond MTD, helped by product enhancements to Payroll Director and Zero Tax.

33:59 In the U.S., pro forma revenue grew 51% to $365 million. We added 31,000 customers, taking the total to 455,000 customers in the U.S. I'll say more about the U.S. shortly. The pattern is consistent. Executions continue across regions and our product set is broadening. Beyond the 3x3, we're building a repeatable go-to-market playbook. This half, we launched direct small business sales in Australia, UK, and the U.S., and introduced zero coaches in the U.S. to provide one-to-one onboarding. We also hosted zero cons in London and Denver, engaging 3,000 plus accountants and bookkeepers, and introducing new products. We're delivering AI solutions designed around customer value.

34:44 Adoption is growing. One million customers have used our generative AI features over the last 12 months, and monthly users are up nine-fold year-on-year. Key launches this half include the ZeroForce, now in alpha, and our quad, ShaqGPP, and Gemini connectors. Collective usage is growing 40% month-on-month, including through our newer integrations with Anthropix SMB plugins. Our people remain one of our most important assets. We call this unleashing zeros to win, and AI is helping our teams do that. and each one FY27 engineering velocity increased 2.5 times. 97% of engineers use at least one AI tool daily and cloud code now generates 78% of AI change lines of code. We also launched Citizen Builders, giving Xero's outside products in engineering 90 days to build reusable AI skills, agents and workflows. They're already reimagining end-to-end work such as prototyping, sales meeting prep and on-brain content. AI Tooling is one of the highest scoring areas in our latest employee survey, with people recognizing our investment in their AI skills.

35:50 I'm proud of the progress in the final year of our FY25 to FY27 strategy. Let me reflect briefly now on how far we've come in our multi-product journey. Four to five years ago, DAO was largely an accounting product. That gave us fewer ways to deepen engagement and usage. Our 3x3 strategy has helped us evolve into an AI-powered multi-product platform. We want to deliver a category-defining experience for small businesses and accounting partners across accounting, payments, and payroll. These higher-value jobs can expand average revenue per customer, absolute gross profit dollars, and cash generation. They also let us differentiate within existing zero plans and add consumption-based revenue to our non-seat-based subscription models.

36:35 While some products, such as payments, may have lower gross margin percentages than accounting, they deliver absolute gross profit dollar growth. That is what we're managing the business for. Broadening and deepening Xero's values and operating system for small businesses supports this focus on customer needs and the jobs they need done, letting us build a more diversified business model and one that delivers durable, long-term free cash flow generations. The U.S. shows how a multi-product offering can create more customer value and stronger financial returns. With Gusto Live, customers can now use one connected platform for their core jobs, accounting, payroll, and payments increasingly powered by AI on Xero. Selling multiple jobs to one customer lets our team focus on Xero's overall value, not just one product sale at a time at volume.

37:29 Table Powered by Destel launched in August and is already seeing good early adoption. Embedded bill pay has now grown strongly month-on-month throughout H1, with annualized CCD just reaching U.S. $1 billion. Nelio now has 43 partners live with Cashflow Central, including Puff10 Bank, U.S. Bank, and more than 200 in Pipeline. We've also begun cross-bonding Nelio to accounting and bookkeeping partners, including Bookkeeper360 and Cheney, which will activate over time and support gross margin expansion. U.S. delivered strong first half results. Per former revenue grew 51% year-on-year, and average revenue per customer expanded 26%. Revenue reached $365 million for the half, up from $114 million three years ago. As we build a sustainable, competitive U.S.

38:15 business at scale, gross profit dollars matter most. Per former gross profit was $119 million, up 43% year-on-year. Melio also continued to perform well. Total payment volume grew 25% and take rate expanded by 21 basis points. We remain on track for Melio to reach adjusted EBITDA break-even on a run rate basis by the end of H2 FY28. That aspiration reflects continued revenue growth, growth margin expansion for multiple sources, and accelerating operating leverage, with core operating expense growth expected to be maturely lower than zeroes. Our stepped-up U.S. brand investment is also underway and on track. Unaided awareness rose 4 percentage points and a half. We're concentrating spend mostly in digital channels so we can measure returns consistently.

39:05 And our focus is on reaching the right customers, not simply maximizing volume. Turning to AI, we're pleased with Jack's adoption this half. Around 1 million customers used our generative AI features in the last 12 months, and monthly active users grew ninefold. AutoBankRec is our most used feature with around 90% of customers returning month after month. Since launch, it has reconciled more than 100 million transactions and saved customers about half the time they spend on monthly reconciliation. Customers also value Jack's accuracy, which is over 96% on auto-reconciled transactions, as well as its auditability and controls. Jack's Chat and Smart Document Capture are other newly available AI features. Jack's Chat customers grew six-fold in the last 12 months.

39:52 Smart Document Capture grew 4.5 times in the last six months since launch. Repeat use is the clearest evidence of customer value and gives us confidence in the monetization opportunity ahead, which I'll discuss later. Before I hand over to Claire for the financials, I want to address the news that she has decided to leave DRL for a larger CFO opportunity. Claire has been an exceptional partner to me, the leadership team, and the board. She's helped guide our financial strategy through a period of strong growth and bought greater discipline to our capital allocation framework. I'm sad to see her go, but as her friend and colleague, I'm delighted for her. This is a well-earned next step and we wish her the very best. Claire will stay with us through the end of January to support a smooth transition and a global search for her successor is already underway.

40:37 Over to you, Claire.

40:39 Thank you, Sukhinder, and good morning, everyone. It has been a privilege to work at Xero through such an exciting period of its growth. I'm proud of what we have built together. That includes our cash generation, our disciplined approach to cash allocation, the media acquisition, and today's chair buyback. Thank you to Sukhinder, to the board, and to my team. Thank you also to our investors and analysts on the call for the engagement and support. Now let me walk you through the results in detail. I'd like to reiterate the strength of our results. The team has continued to execute over the past six months with integrated media, accelerated revenue growth, and Delivered Free Cash Flow. A reminder, some financial information is presented on a pro forma basis, adjusted for media to show like-for-like trends. I'll call out reported numbers where they differ materially. Details are in the appendix of our Vista deck.

41:37 Let me take you through the results. Operating revenue reached $1.75 billion, up 46% year-on-year in headline terms. Pro forma growth accelerated to 27%. Demonstrating persistent high growth across our global portfolio. AMRR included in Radio's direct customer revenue reached $3.8 billion at the 30th of September, up 41% or 29% on a pro forma basis. Growth reflected strong customer growth and accelerating ARPC expansion, supported by 62% growth in U.S. payments. We now serve 5.1 million customers, up 11% on a pro forma basis. We added 226,000 net new customers in the ARF, 50,000 more than a year ago. Demand remains strong as small businesses and accountants value our offering in the AI era.

42:39 Group ARPC reached $62.21, up 25% or 20% in constant currency. Muneo contributed $5.81, just under half of the uplift. Organic ARPC grew 14% to $56.4. Growth came from deeper product usage and mix, not just price, as we evolved into a multi-product business. Payments rose to 22% of revenue in H1 of fiscal 2017. Up from 15% in H1 of fiscal 25 on a pro forma basis, demonstrating the diversification of our business as customers adopt our solutions and deepen usage. Total payment values grew 23% to $38 billion.

43:31 Our core recurring subscription software model is also strengthening as we expand our value propositions through AI offerings, plans such as Ultra and Deeper analytics. This broadens revenue streams and ARPC opportunities. Together, these growth engines improve customer economics reflected in pro-former ARPC growth. The shift to multi-product growth led by payments drives strong gross profit dollar growth with a different margin profile. Gross profit reached $1.3 billion, up 22% pro-former. Performa gross margin was 76% down 3.1 percentage points, largely reflecting Media's impact on revenue mix.

44:18 Payments carry a lower margin percentage but are fast-growing and accretive to gross profit dollars. In subscriptions, we make tactical one-time investments in platform resilience and cloud infrastructure stability. The payments mix effect will continue to evolve as the business scales and drive significant operating leverage. while gross profit dollars and free cash flow dollars continue to expand. This is a multi-product business at work with less reliance on price rises and more ways to monetize the value we deliver. Moving to average revenue per customer, ARPC is per business, not per seat. So AI enabling a business to run with fewer staff does not impact it.

45:04 Since March, ARPC raised 12% driven by five factors. Direct payments, including video, added $1.57. This is a significant contribution from a US-only product, driven by usage-linked transaction revenue with zero bill pay take-rate up 21 basis points. Targeted pricing continues to monetize the value we deliver through new features and capability improvements. It contributed less than historically as other levers grew. Product mix was slightly positive, Strong US New Customer Mix was partly offset by lower price making tax digital plans in the UK. Platform Attach and other reflected continued invoice payment growth on the account receivable side. Adoption is increasing across the 3x3, supporting invoice TTP growth of 25% and revenue growth of 42%.

46:05 FX was a tailwind. largely reflecting a weaker New Zealand dollar against major currencies, particularly the Australian dollar. We've added regional disclosure to explain churn drivers and demonstrate confidence in customer retention. Monthly recurring revenue churn over the last four months was 1.19%, slightly above pre-pandemic levels. The recent uptick is a mixed story, not the change in existing customer behaviour. International growth is accelerating and contributing more new customers. The region's structurally higher churn reflects a greater weighting of direct channel customers. Cohort churn removes short-term churn from direct acquisition and gives a cleaner view of existing customer behavior.

46:57 It was broadly flat year-on-year at 0.83%, up only two basis points half-and-half. By region, this metric was 0.72% in ANZ and 1.14% in international. Existing customers remain deeply engaged and the platform continues to deliver value. This supports confidence in direct acquisition. These customers generate higher absolute LTV because ALPC is higher and they stay long term. Unit economics reinforce this. LTV grew 16% year-on-year to $22.7 billion, CAC payback increased to 13.1 months from 15.2, and LTV to CAC rose to six times.

47:49 Of rating expenses, excluding M&A and other transaction costs, were 68.6% of revenue for the half, 10 percentage point lower over three years. Revenue per FTE reached $696,000, up 36% year-on-year. FTE has been flat since H1 of fiscal 24 through disciplined headcount management, so revenue per FTE has nearly doubled. We believe AI will help us do more with what we have, accelerating product delivery, creating room to reinvest in areas such as U.S. brands, and continuing to deliver operating leverage.

48:34 Efficiency improved across sales and marketing, products and technology and DNA. We show the media separately to make the core operating improvement clear. We continue to invest in performance marketing across digital channels and increase targeted US brand spend. Sales and marketing improved 1.4 percentage points to 30.3% of revenue. Excluding Meteo, average customer acquisition cost improved to $740 per gross customer added from $757, reflecting strong momentum across our 3x3 markets, particularly UK, making touch digital.

49:19 In product, we maintained a high delivery cadence, as seen at Vericon London and Denver, while delivering operating leverage. Cost improved 1.9 percentage points to 26.3% of revenue with emerging AI tool efficiencies supporting customer delivery. Gross product spend was 31.3% of revenue down 3.3 percentage points. The capitalisation rate was 43.9% versus 47.4% last year. Lower capitalisation means more spend is expected

49:58 The leverage is not coming from taxidermization.

50:02 DNA growth largely reflected Melio's incorporation due to its maturity and variable payments operating costs. Even so, DNA improved 0.9 percentage points to 12% of revenue. Moving to the bottom line, adjusted EBITDA was $362 million, up 3% reported, reflecting full half of Melio, and up 23% or $67 million on a pro forma basis. Adjusted EBITDA margin was 20.7% compared with 21.4% pro forma last year as we funded incremental US brand spend. The consistency of our execution is delivering compounding benefits as we look at profitability. We expect this trend to continue to accelerate in the second half.

50:54 Our guidance implies H2 adjusted EBITDA of $518 to $558 million, up 29 to 39% from last year's first former second half. The strong first half operating performance and strategic execution have enabled us to upgrade both the fiscal 27 outlook and our fiscal 28 aspirations. Together, these changes reflect the momentum in the business and demonstrate the confidence management and the board have in long-term value creation. Starting with revenue, we are upgrading our revenue guidance. We now expect revenue to be between $3.77 and $3.83 billion.

51:42 The increase largely reflects stronger media payment performance alongside an FX benefit. On a constant currency basis, Proforma Revenue Growth is now expected to be between 24% and 27%. On Adjusted EBITDA, we are raising the bottom end of our guidance range for fiscal 27. Adjusted EBITDA is now expected to be between $880 and $920 million. This guide continues to reflect our expectation of a higher than historical EBITDA weighting towards the second half as we see the benefits from the flow through to revenue of announced price rises and payments growth momentum, continued discipline headcount cost management and further operating efficiencies and an expected reduction in Nelio's adjusted EBITDA losses driven by operating leverage and modest gross margin expansion.

52:42 I'll quickly unpack how this guidance comes together. The revenue upgrade flow through to EBITDA is impacted by Firstly, media payments revenue adds gross profit dollars but at a lower margin than subscription revenue. Second, a weaker New Zealand dollar lists revenue but it also lists our offshore non-New Zealand dollar cost base. Third, we are choosing to reinvest some of the upside in AI capabilities and our cloud infrastructure because that drives product delivery and uplifts our fiscal 28 aspirations. Bringing this together, Zero now expects to deliver a pro forma rule of 40 outcome of around 40% for fiscal 27, up from the 36% last year. This guide demonstrates our strong revenue growth and the confidence Zero has in our cash flow generation.

53:38 This supports our ability to return capital to shareholders through the announced on-market buyback, which I'll cover shortly. Moving to our aspirations. Starting with our revenue aspiration. The strength of Media's performance to date has accelerated Xero's revenue growth opportunity. We now see the opportunity for Xero's fiscal 28 revenue to be more than $4.6 billion, excluding revenue synergies. That compares with our previous aspiration of more than doubling fiscal 25 revenue for more than $4.2 billion. Bureau's aspiration remains to deliver a greater than Rule of 40 outcome in Fiscal 28, building on the strong momentum reflected in the Fiscal 27 Rule of 40 Guide.

54:27 The strength of Melio's growth also supports our reiteration that we expect the business to reach adjusted EBITDA break-even on a run rate basis in H2 of Fiscal 28. This outcome reflects continued strong revenue growth, growth margin expansion, and accelerating operating leverage as media drives scale. Our strong balance sheet and cash flow provide financial flexibility and continued growth optionality. Total liquid resources were $1.5 billion at the 30th of September, including the undrawn revolving credit facility. Net debt to pro forma adjusted EBITDA remains conservative at 1.1 times. Following completion, of our AUD 550 million share mutualization program.

55:18 Since the end of H1 fiscal 27, we have repaid the remaining 200 million US dollars of our revolving credit facility, which is now fully undrawn. Turning to today's announcement, the board has approved up to a 1 billion Australian dollar on market share buyback, demonstrating a long-term conviction in zero. We believe the current share price does not fully reflect Xero's long-term value and growth potential. Our strong financial position allows us to execute the programme while fully funding strategic growth priorities. Balance sheet strength will be maintained throughout the 12-month programme. This will be funded with excess cash and strong free cash flow, all while retaining capacity to implement our build, partner or buy approach.

56:09 We intend to maintain a healthy net debt to adjusted EBITDA ratio throughout the programme, supported by the outlook for adjusted EBITDA growth and strong free cash flow generation as reflected in the updated guidance we have provided today. This buyback will be value accretive and support per share metrics through an absolute reduction in share count, while continuing to enable neutralisation of issuance associated with share-based compensation. To conclude, we are at an inflection point. We have embedded and ingested Meneo and executed our strategy with discipline, resulting in significant operating leverage. This is delivering strong cash generation that we are returning to shareholders.

56:56 All of this supports a second half and future trajectory that reflects Xero's ability to deliver a category-defining experience for small businesses, accountants and bookkeepers across the globe. are now crossed back to Sukhinder.

57:11 Thank you, Claire. I'll use the remaining time to discuss our AI vision, then wrap up. Each technology shift changes how small businesses, accountants, and bookkeepers work. From the desktop and the internet to mobile, cloud, and now AI, Xero has been at the forefront of these shifts and let our customers through them. AI offers an even more transformative opportunity for our customers. We can help them save time, money, and gain new capabilities to thrive and by doing so, we extend our TAM further. Our research shows that as with cloud in its early days, AI adoption among small businesses is still nascent. Across Australia, the UK and the US, 77% of micro businesses and 68% of small businesses are at an early stage or have not adopted AI.

57:56 That gives us significant runway to support them. Adoption rises with business size. More than half of medium and large businesses actively use some form of AI for their business. including simple tools such as AI Chat. Customers already see Xero as a leader in helping them save time and automate tasks. In Australia and the UK, 40% of respondents associate Xero with using AI to automate tasks and save time specifically, the highest of any accounting software brand. Customers tell us Xero's AI tools give them back time and unlock capacity they can reinvest in growth and new services. For one Australian bookkeeper, Auto Bank Rec turns one of their lowest return packages into one of their biggest revenue makers. Our customer surveys show AI tools pay the average practice more than seven hours a week in Australia and the UK. That translates into real dollar savings and gives us confidence we're solving the right problems in the right way.

58:52 As you saw earlier, more than one million subscribers have used our AI features in the last 12 months and hundreds of thousands use them repeatedly. We're also seeing tens of thousands of power users emerge from our base with three patterns. First, they tend to be on higher tier plans. AI adoption among ultimate customers is about five and a half times the rate of Ignite and early claim customers, reflecting the needs of more complex small businesses. Second, they use secure access of Xero data through our AI integrations. In September, customers using Xero through Cloud, ChatGPT, and Microsoft 365 Copilot grew around 40% month-on-month, 3.6 times the main levels. They're using these connections to retrieve zero data and build simple workflows.

59:38 Third, customers, particularly accounting and bookkeeping firms, are building repeatable, agendic workflows with zero force. The platform lets them tailor workflows to their practice with controls grounded in zero context. While still in alpha, more than 100 zero force workflows are already running day to day, helping practices work more efficiently. More than 500 customers are on the wait list for the beta. These power users show how delivering more value can expand Xero's long-term addressable market. Customers can adopt AI from Xero in two ways. One, using packaged solutions on key Xero services, or two, build their own workflows using our trusted infrastructure, data, and tools. Both rely on the foundations of a global AI-native platform, 20 years of experience serving small businesses and accountants, plus the accuracy, security, and trust that come with our scale. At the core of both ways of using Xero is the Xero operating system.

1:00:34 Trusted infrastructure such as bank feeds, tax authority integrations, and payment rails supported by our data, scale, and trust. Our services layer makes that infrastructure available through APIs and our MCT. Customers can build directly on it or connect approved third-party apps into their workflows. Packaged JAX solutions meet customers where they are, embedding AI into familiar workflows and making them more powerful. Features such as Auto Bank Rec and Smart Dock Capture can drive broad adoption, improve efficiency, and build trust through repeated use. End-to-end workflow solutions are for power users. These customers want to apply AI to their own internal workflows. Today, ZeroForce is used mainly by a small group of power users in Alphabet. Our ambition is to give every accounting and bookkeeping firm the agency and control to put AI to work for their practice, employees, and small business clients.

1:01:26 So building on this, today I'm excited to announce X-Force by Xero in beta, our end-to-end platform vision for customers who want to customize AI workflows using Xero. Initially aimed at larger accounting and bookkeeping firms and more complex small businesses, it builds on our Xero force launch and learning and takes the promise of that platform further faster. Let me explain X-Force by Xero. Beyond the ZeroForce platform for creating custom workflows and custom builds through our API program, we see demands for two further capabilities. First, four deployed engineers working alongside our partner consultants to design and build end-to-end workflows. They'll use ZeroForce, APIs, and JAX, and help automate the many customized processes within practices that AI can reshape.

1:02:15 Second, we see demands for customers who may want to deploy an AI teammate from Xero that can take on and automate tasks within practice or complex small business, much like a junior employee. This model is emerging in other industries, for example, technician and engineering, or Harvey and Eagle. Bringing it to our customers globally is an exciting opportunity. We first discussed this at XeroCon Denver when Emilio announced the early data of Casper, an AI teammate for U.S. accounting and bookkeeping firms. But that opportunity really exists across all our key markets. X-Force is the umbrella for our end-to-end custom AI solutions. We're pleased to announce our first design partners who will help shape the offering before full commercialization. As it's in the UK, Inexia and Shepherd Henson in New Zealand.

1:03:04 As a reminder, you're already employed more than 150 accounts within our own workforce. And we have a long history of redesigning workflows with accounting firms and for them. Our partner consultants, as an example, have helped thousands of firms move from desktop to cloud and continue to help them grow on Xero. Adding Xero for deployed engineers gives us and our early partners strong confidence that we can help accounting and bookkeeping firms globally adopt AI faster. We see three routes that we can monetize this AI transformation for customers, backed by early proof points from the recent half FY27. We can see that bundling AI into our existing product range supports adoption and straightforward monetization through a familiar subscription model.

1:03:53 Secondly, we see consumption-based opportunities through credits and add-ons. In the UK, early take-up of AI add-ons on lower price tiers is encouraging. We can also see consumption-based usage through our API calls. Third, customers already pay for custom solutions. Built upon our APIs, an X-Force creates further opportunities to charge for our platform and solutions built around them. Where's the start of AI monetization? The strong adoption of first half alongside early innovations such as Zero Force and our AI connectors is teaching us where demand exists today and where it may grow across our customer base. To wrap up, four themes stand out in our results. First, growth, profit, and free cash flow are scaling together.

1:04:41 Thank you for our teams around the world for their continued hard work and for supporting our customers and partners. That concludes our presentation, and I'll hand back to the moderator for questions. Thank you. We will now have a question and answer session. Just a reminder, if you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. Your first question comes from Eric Choi with Baron Joey.

1:05:26 Please go ahead.

1:05:28 Thank you, and good morning, Sukhinder and Claire. Could I please ask two? Just the first one on AI monetisation. You've got out three buckets today, bundling, consumption, solutions. Intuit looks like it's similarly bundling AI features onto its high-end plans and capping usage and they've launched Agent Studio. So I was just wondering if you can help us understand how you differentiate your proposition versus Intuit and kind of related to that Intuit was then able to use AI as a catalyst to step up its pricing and so I was just wondering if there's any of that AI Monetization Benefit coming through in your revenue upgrades today as well.

1:06:13 Sorry, that's the first one.

1:06:15 Okay, thanks for the question, Eric. Good to chat with you. So I think I want to address the question in three ways. First of all, on bundled pricing, as you know, many AI features, we want to drive adoption across the base because they have a lot of value across the base. SmartDock Capture can be used by virtually every customer. Auto Bank Rec, of course, we're a bookkeeping platform, is a core feature. And so there we will choose to make, you know, I'd say strong features that can be used widely across all sizes of small businesses and accounts and bookkeepers, available probably in some fashion that supports our price increases, but I don't think you should assume is read into any of our upgrades. But I think that it is true that there will be table stakes. Thank you for joining us.

1:07:18 which is more complex small businesses we can already see have more appetite to pay and more desire and need for advanced AI features. We saw a bit of that in the customer panel or webcast. And so I think there we can see the opportunity for overages, and we can also see the opportunity for them to maybe use both JAX and our APIs as an example. So you can see multiple opportunities for consumption. And then on the third front, which is solutions, I want to really talk about our early investment. I will note, and I think it's important to note, we moved first many months ago to launch Zero Force, very speculatively, I would add, on the need to create custom workflows. and AD to feel like they're in control of their AI.

1:08:03 And that led us today to be able to announce Xforce, which adds around that an SDE model and the ability to go in with our partner consultants and build end-to-end solutions with our key partners. And that is an entirely new monetization stream for Xero. I'll remind you that historically, we monetize accounts and bookkeepers to assembling selling bundles of licenses. So, you know, we're excited about this new solution selling opportunity. And that was built on the early move on zero force. But we believe that, you know, our partners need help, not just, you know, an automated workflow, we can see that they want us to help lean in and consult and advise and build. And so that's why we're excited to wrap it around with that FCE model. So, you know, I'm here to speak to the innovation that zero is driving.

1:08:49 And I'm really proud of the team because If you recall, you know, two years ago, JAX was but a dream. And today we're sitting here with, you know, over a million customers who've tried our features, broad-based adoption in the base, three levels of monetization, and brand new products and business models launching.

1:09:06 Very clear. Thank you, Sukhinder. And Claire, I hope it's okay to ask you another question on maybe your final conference call.

1:09:15 Absolutely. Thanks. I just wanted to check what your and the logic is you're guiding to above rule of 40 for FY28 and you're also kind of guiding for revenue growth in FY28 in the low to mid 20s. So by inference you kind of need a free cash flow margin in FY28 in the high teens and so you can kind of work out you're saying free cash flow probably improves by $300 million or more in FY28 so free cash flow is improving by $300 million or more doesn't that mean? EBITDA needs to improve by $300 million or more in FY28, please.

1:09:53 Yeah, so thanks for the question. We're very excited about the results, about the upgrade that we've given to our fiscal 27 guidance, but also our aspirations as well. And I think what I will do, Eric, I'm not going to give you a detailed EBITDA guide for fiscal 28 at this point, but what I would like to reiterate is yes we have increased our fiscal 28 and revenue aspirations to be at least and above $4.6 billion and that excludes revenue synergies and so that's an at least number so that was obviously a great upgrade and that is coming from strength in the core and our media payments business which we're very excited about.

1:10:38 To your point we also double down on the fact that we will be above The rule of 40 in fiscal 28 and the contribution of that rule of 40 to your point is coming from the revenue strength, the drop through of profit and free cash flow dollar generation. And so without giving you an exact guidance, I think you're thinking about it in the right way. We are very happy and excited about the fact that we will hit the rule of 40 in fiscal 27, which is earlier than we previously said. and again a combination of revenue growth and free cash flow dollars driving those strong upgrades to our guidance and our aspirations.

1:11:19 Very helpful. Thanks Claire. Thank you. Thank you. Your next question comes from Lucy Heng with UBS. Please go ahead.

1:11:30 Good morning Sukhinder and Claire. I've got two questions as well. My first question is on the US. Maybe if you can give us an update on the competitive landscape in that market and now that we're heading into the second half, just the confidence on the second half and high selling season in the US and just any colour you can give us on how you think that trajectory will go.

1:11:52 Sure. Well, Lucy, this is Sukhinder. I'll take the first question and I'll pass to Claire for any comments she wants to make on the second half. So, first of all, as you noted, the U.S. is both one of the largest S&D markets in the world, that's why we're there, and one in which our product is valued, and also continues to be a competitive market. Now, from our perspective, I think we feel very good about our results and our momentum. I would also say that our thesis that accounting and and payments are converging and financial service continues. I think you see that reflected in the intended environment, so I'd say that fills us feeling well about how we honestly positioned our own need to make sure that payments and accounting converge on zero as well. So I'd say that continues to be validated in the external environment.

1:12:38 You can see it, you know, for multiple players. I think the second thing is to note is that the AI opportunity in the U.S., as you know, also is one that we participate in. We don't just learn from it and watch it. We participate in it. So, you know, one of the advantages for us is we saw the early opportunity from the U.S. market for all of our global markets. It's not just from the U.S. for the U.S., by the way. It's from the U.S. for everyone. The need to launch zero growth early on. Like I think we saw that opportunity nine months ago from learning in other competitive categories like legal, you know, how we might be able to help You know, our enterprise clients, in our case, accounting and bookkeeping firms, really take advantage of AI and take control of AI for their own workflows.

1:13:24 And so I'd say the U.S. continues to be a very competitive AI market, but I think it's one in which we also get a net benefit from being a competitor because we learn from that market. We drive, you know, globally based on those AI moves. You know, if you look at our AI moves, it's always been a basket. of kind of core features like, you know, auto bank rec along with speculative features and that serves us very well. So I think it continues to be a large competitive market, one in which we feel good about our momentum and about our moves across the three jobs and one in which we learn rapidly and innovate rapidly for the benefit of all the globe.

1:14:04 And maybe I'll just add in, Lucy, as we think about that, as you've seen in H1, Subscriber growth saw strong execution. I think what we're particularly excited about, though, is within our revenue growth within the U.S., it's been a strong diamond payments revenue growth, and that reflected strong monetization of existing customers. So, you know, we're really excited about that and the expanding take rates and TPV per customer that we're seeing. So it really goes to show that it's more than just a customer growth story. It's actually a monetization of customers. and a lot of that growth that we saw in the subscriber is coming from our zero core US business which we're excited about too.

1:14:48 Wonderful. And then maybe my second question is to follow up on the AI monetisation. We are noticing that you are bundling in capability profit plans and differentiating the levels of AI capabilities available. Have you seen any incremental uplift from customers upgrading up the plans to access

1:15:08 I think we do know there's incremental willingness to pay, but I think it would be hard to draw a line in H1 historically and say, well, plan upgrades were specifically due to this. Because if you think about a lot of that bundling reminder, it's happened over the last six months, like Smart Dog Catcher launched this summer. So it's hard to say yet whether or not, you know, that's driving its own moves in plans. I think what we can see, conversely, is our early experiments where we don't have AI in. I noted this on the call. In our lower plans, we decided to keep AI features out of our lower plans, given customers' price sensitivity, and we can see that add-ons are working. So I think we have early evidence that differentiation plans is working, but I would not yet submit that mixed shifts in H1 historically would have been specifically due to AI features.

1:16:04 Understood. Thank you so much. Thank you. Your next question comes from Andrew Gillies with Macquarie. Please go ahead.

1:16:14 Thanks for this morning, Claire and Sukhinder. Just two questions. The first one, just around the X-Force, you know, when are we expecting the launch? You know, I know it's pretty early, but, you know, a launch there will be great to get a date. And does it signal an intention to both build your own products using open waste models as well as leverage third-party models? And then do you want the second one now as well?

1:16:40 Can you hold on it so I make sure I answer the first? Sure. Let me take the easy... The Easy One and Open Weight Models. We are model agnostic and we are built to take advantage of both proprietary and open weight models. So you should presume that our ongoing strategy will be to pick the right, you know, model suited to the task. And of course, over time, also optimize what we spend on these different models for a given task, right? A reminder, there are many automated and machine learning tasks that do not require a frontier model and provide, you know, massive amounts of value. I think that we will and are poised to take advantage of multiple models and that will be our strategy on an ongoing basis. In terms of I think your first question was really about exports and a date.

1:17:26 We really like our betas at zero mostly because we want to work with our customers to make sure we have products that are ready for prime time when we monetize them. I think you know that on AI in particular we focused first on adoption and then took things to general release. I think with exports I think you should expect that, you know, we obviously have strong ambitions, but I think we really want to work with our first design partners to make sure that we're getting in there and helping them build AI-native workflows in a way that suits them while we understand what model they want to use with our partner consultants and for deployed engineers. So I think we're not giving a date, but I think the goal is to learn rapidly. We wouldn't be announcing this today if we weren't intending, you know, to move fast, right? We already do have, as you know, a big beta list on Zeroforce which launched six months ago effectively in alpha and we're opening up that beta while we now move to Xforce which is in some ways the superset solution where we also augment with for deployed engineers and so you know think of this as ways of learning but we're moving pretty rapidly.

1:18:32 Perfect thank you and then And then in terms of, you know, the sort of competitive landscape, but more around sort of some of the revenue model shifts we're seeing, like for some of those consumption-based monetization opportunities, is there any intention to move to like a Salesforce style model? I know you charge for APIs now, but arguably that could be monetized more deeply and it's a potential competitive lever as well. Is that sort of, you know, an option that you've looked at and how should we think about that monetization channel through consumption?

1:19:01 Thank you so much for having me. If you think about some customers, they just want it bundled because they want to know what they're going to pay. But we know that the value of advanced features may be much more realized in consumption. And quite frankly, it correlates pretty highly to size and complexity of the small business we're serving. So I think that may be an example of more desire for metering, understanding, and willingness to pay. The good news for us is we have a pretty broad base customer set and we're starting to cohort and really understand the AI behaviors.

1:19:48 So I think you'll see a mix of models in our base and I think we'll be really matched to customer value and customer desire to adopt.

1:20:11 Perfect. Thanks, Kenda. Thank you. Your next question comes from Faraj Ahmed with Citigroup. Please go ahead.

1:20:23 Hi. Can you hear me okay?

1:20:25 Yes, thank you, Faraj. We can hear you.

1:20:27 Yeah, I might bug the turn and ask three, but anyway, I will start at two. The first one, maybe, Claire, just thinking about the full year revenue guide, right, it does imply, I think it's a five or six-person choice, Acceleration and revenue growth on a pro forma constant currency basis. Claire's helped with what's driving that between Milio and standalone zero. That'd be helpful. And within Milio, yeah, just on TPV, because the take rate's already going up quite a bit. Is there further room to grow? Is syndicated starting to come through in the second half?

1:20:59 Thanks. Yeah, absolutely. So, yes, we are pleased with the upgrade that we saw. and yeah a lot of the majority of that uplift is coming from the performance and strength actually in our Medio payments business in the second half of the year. There was some currency benefit as well but to your point you've extracted that so the underlying operating performance is coming from Medio and we see that across Medio.com and our syndication business. You can see in the first half results that we shared that they had a strong performance in H1 and this has given us just additional confidence in what we expect them to deliver. I will also say that the Core Zero business is performing extremely well. You can see the continued subscriber growth and ARPC expansion that we're seeing on the Core Zero in the 3x3 as well.

1:21:51 So we are very excited about those results and the continued growth opportunity there. as we look ahead. And we give our kind of AMRR numbers, and you can see that is at 3.8 billion. And just to add on to that, to get to the four-year buy, there's obviously higher growth in milo payments. Syndication is excluded from the AMRR number. And also the price increases in several regions is not included in that number as well. So that gives us why we see really strong confidence to be able to upgrade and many more.

1:22:28 Thank you very much. Thank you. Zerocon is also in the first half. Just trying to understand what's driving our picks higher. And is that gross margin assumption fair as well?

1:23:00 Yes, I think so. The way to think about it from a gross margin standpoint, and we did include for the full company results a bridge. And so just want to reiterate our zero core gross margin is stable. We did make, we are making in fiscal 27 a one-time Thank you all for joining us. To your point, we are going to benefit from operating leverage as we go into the second half, which naturally helps our adjusted EBITDA.

1:23:54 Some of that is coming from revenue and volumes, but some of that, to your point, is from expenses that we saw in the first half, like the two zero cons that we hosted this year that obviously we don't have in the second half of the year. So a combination of both gross margin and operating leverage. which is lifting that second half EBITDA numbers.

1:24:18 Sukhinder maybe you should cook on if you I mean see very strong top line performance no doubt about that but if I just look at standalone zero it's on a constant currency basis it's maybe a bit below you know sort of 20% aspiration before you before you bought Melio right how do you think about the growth outlook looking ahead I mean New Zealand seems to be softening a bit it's just overall portfolio In terms of driving 20% growth for just standalone, how do you think about that looking ahead, especially with this new monetization schemes that are coming through?

1:24:49 Yeah, I would say I think we feel like Core Zero, including its continued operating leverage, is quite strong. So I'm not sure I read through the weakness you do. In fact, we would say Core Zero continues to perform very well in all markets. And, of course, remember that our strategy in all of our core markets, continues to be that pursuit of broader and deepening customer values. So excluding Muleo, payments is up across the board. Excluding Muleo in our more mature markets, we have the opportunity for Ultra, you know, and going after that more complex small business, including in markets like New Zealand, not just the UK and Australia. In Core Zero, we have the opportunity, as I pointed out rightly and you understood, to keep driving our AI solutions through like a wide swath of customers when you think about the millions who will adopt through JAX versus narrower solutions that have higher monetization potential for the tens of thousands of power users in the base.

1:25:46 And those power users will also grow over time. And then, of course, brand new solutions we've never had before, like a brand new offering for AVs. So I think we read through continued strong operating leverage in Core Zero. We read through in both Melio and Zero Increase in ARPC through the payments job, which is adding gross profit balance across the board to the business with higher operating leverage because we maintain pretty good discipline across all of our cost structure.

1:26:17 Yeah, and maybe I'll just double down on that. I mean, you can see in our H1 results, you know, really strong, robust growth continues in Australia. Yeah. at 23%, the UK at 24%. So I think we are very pleased with how the core zero business is performing and we are also seeing momentum in the international business as well.

1:26:39 And the tan there, right? So there's still more tan to be had, again, across the core jobs and then also AI.

1:26:46 Super clear. Thank you. Thank you. Your next question comes from Nick Bessile with Jarden. Please go ahead.

1:26:57 Morning Sukhinder and Claire and team. I've got a few questions on Malleo. I'll start with the first one. Just on the BillPay product, I think the US BillPay revenue growth was quite strong. Claire, I think you made some comments about strong monetization of existing customers. Just interested if you could elaborate further on that, particularly about How much, I guess, penetration of that existing customer base is using the built-in product and perhaps how we think about that remaining conversion of anyone who's not perhaps adopted it? Thanks.

1:27:36 Sure. This is Sukhinder. I'll start and then I'm sure Claire will add. You are right that we're pleased with the growing results month-on-month of zero bill pay. I mean, if you look at the product, it's now at a billion-dollar TPV in less than nine or ten months, I guess, if we think about the start of the year when we sort of first put it into release. But it's very steady growth. And what we like about that growth is we're both learning how to attach it to existing customers. And, of course, we're selling it when people come in new. But more importantly, it's showing month-on-month TPP growth per existing customer, which really means your customers are adding more bills to it. And so you want to see that trend. By the way, that's one of the things that Melio has historically been good at at Melio.com, growing TPP per customer.

1:28:21 And, of course, we've seen some of those same benefits in zero bill pay. So we are pleased, and I think somewhere, I think in our disclosure, we talked about the fact that the Zillow Pelt Bay job has an ARPC of $106, you know, itself. And that is, I would say, very much reinforcing the thesis that we want to build stronger lifetime value on zero for that zero customer who can now do payments, payroll, and accounting, plus AI, on our platform. Anything you want to ask, Claire?

1:28:48 Yeah, maybe just a reminder, we've actually reached $1 billion in TPB. as well, which obviously is a great accomplishment. And I think to your point, total TPV is up 25%. The total BP revenue was up 65%. And that's coming from both the volume and the take rate improvement, which is great to see. So really good signs, as Sukhinder said, in terms of momentum that we're seeing there and the opportunity ahead.

1:29:20 Thanks. I've got two more, both related, I guess, to this business and how it flows through to the group level. Just if you could help elaborate maybe further on what's driving the weakening gross margin in the US business on a pro forma basis, just what are any, I guess, market factors versus the impact of your higher take rate. And then as we move down the P&L, just on the cost structure... Like thinking about the operating costs below the US gross profit line, what sort of benefits are you seeing there or expecting to see over the coming year or so to help support the lowering or reduction of adjusted EBITDA losses for Melio and therefore your Rule of 40 targets? Thanks.

1:30:11 Yeah, absolutely. So I think just I'll reiterate that the zero core gross margin is largely stable. and that you know is the same because it is a subscription model that's the same across all of our regions including the US so just want to double down on that and the reason for the US gross margin movement is really purely due to mix you know we've got the Melio Payments business which as we know is a lower margin rate growing faster than a subscription business so it's purely a mixed number and, yeah, I think what we're really excited about in the U.S. is the growth in gross margin dollars, you know, both in the U.S. and obviously across the company overall. So, yeah, that is a great trend and it continues to be a gross profit and free cash flow profit generation opportunity for us as we move forward. I think to your point on Melio adjusted EBITDA, so I would say that in the second half of fiscal 27, our Melio losses will be less than the first half.

1:31:23 So that helps us both from an overall performance, but also sets us up well as we move into fiscal 28 and on a path to Melio adjusted EBITDA break even on a run eight basis. and again that comes from that operating leverage, the additional dollar benefit that we get but also the fact that we have cost discipline and operating leverage so that headcount and our costs are not growing as fast as our revenue and we have disclosed in our headcount for example that we are slightly down. We talked about at the year end being slightly down and our headcount is slightly down and I think we'll continue to manage headcount in a disciplined way, manage costs in a disciplined way and with the growth that we're seeing really does unlock that operating leverage opportunity.

1:32:16 Thanks. Thank you. Thank you. Your next question comes from Roger Samuel with Jefferies.

1:32:24 Please go ahead. I've got several questions. First one's just going back to the FY28 outlook. So you've upgraded the revenue to more than $4.6 billion and it looks like it's mainly driven by the strength in NEO. but yet you still maintain that Melio to which the adjusted EBITDA break-even on a run-back basis in the second half of FY28 because I thought the operating cost of Melio is pretty fixed so I would have thought that you can probably get to the EBITDA break-even earlier than second half given the strength Thank you for joining us today.

1:33:43 Thank you very much. and the track that it's on to hit that break even but it's not fully that full upgrade in fiscal 28 is not 100% is a mix across the total business and the strength that we see as we move through fiscal 27.

1:34:19 Got it. Okay, thanks. Second question is just on churn, which is rising sequentially even on an underlying basis. What's starting that churn increase and what's the level of churn that you would be concerned that perhaps the price increases beginning to affect the customer retention?

1:34:43 Yeah, so just with regards to churn, honestly, the sequential kind of half over half increase on an underlying cohort basis is very small, like a couple of basis points. So the main drivers of the overall movements in churn are coming from that mix. and we've broken out specifically the international international churn versus ANZ so people can see that we are earlier you know earlier adopters in international it is a higher mix of direct but we are you know we're not concerned at all about the movements that we're seeing in churn driven by the fact that it's mainly early cohorts and coming from a higher direct mix and higher international mix.

1:35:31 Okay, thanks. And the last one just on the NetEx in Australia, which is really strong, plus 91,000 subs. What was the main driver behind that? Is it in terms of market share gains versus your competitors or just more business information?

1:35:52 Yeah, Roger, it's just continued execution. I wouldn't say there is any specific thing we would call out. It's just continued to show the strengths. of our franchise in Australia and of course all channels right as you know historically it's a very strong accounting bookkeeping channel that continues you also know our direct motion is improved everywhere in the world including in Australia and that continues to also help drive great results and consistency of growth in that Australia sub-member.

1:36:22 Thank you. Thank you. Thank you. Your next question comes from Tom Beadle with RBC. Please go ahead.

1:36:33 Thank you for the opportunity. I've just got three as well. Just a bit of a follow-up from Roger's questions and maybe just asking it in a bit of a different way. Just on the 28 revenue upgrade, I guess, Would you maybe just, I guess, divide that into three buckets? So, you know, how much of that is just from FX, including maybe locking in, hedging at better rates than you might have previously expected, as much as Melio, and then I guess how much is into everything else, so your underlying subscription revenue expectations and any AI monetisation?

1:37:11 Yeah, so what I would say is that the... Most of the upgrade is coming from underlying operating performance, both across the Melio and Xero subscription business. So there is some FX benefit as you've seen that roll into our fiscal 27 outlook, but that is a smaller portion of the benefit. As we think about Melio versus the Xero subscription, I think you can see Thank you so much for joining us. I'm not going to give you an exact guide across each of our businesses, but just reinforce that the FX portion is a smaller portion. It's mainly coming from operating performance, and that is across both the media payments business and stereo subscription business as we continue to add customers and grow our ARPC.

1:38:20 and so just one other follow-up I guess related to that FY28 aspiration just with the revenue synergies what's the current run rate?

1:38:33 Yeah so we're on track to where we expected to be from a synergy standpoint so still on track to deliver the amount that we said At the point of acquisition, that will roll into the full year impact for fiscal 28. And the $4.6 billion is excluding that. So you can add on, we talked about $70 million of revenue synergies. So that will be added to that $4.6 billion guidance. And we're on track to deliver that in fiscal 28.

1:39:05 but thank you and just on the shared buyback I mean it's good to see I guess the question is why now and you're obviously looking to look like you're looking to buy back sort of a roughly equivalent amount to your cash flow so is this something that might be a continued feature going forward?

1:39:26 Yeah so what I would say is we've got the approval for the 12-month program of up to $1 billion to We are very excited about this. We think it's a great way to return value to shareholders. As I mentioned in my prepared remarks, we don't believe that the current share price is a true reflection of the value and future growth opportunity at zero. And it's a very value accrued investment. So we have a very healthy balance sheet. We have a very healthy leverage ratio. and we are generating strong free cash flows. So I think you can see the confidence from the management and board in terms of that approval to reinvest to that free cash flow generation over the next 12 months into a shared buyback. And this is why now we previously spent $550 million to offset dilution.

1:40:24 And so this is now following on from that. This will offset, this $1 billion will offset dilution, but also reduce the number of shares outstanding. So it's just the next step in our capital management. And we think this is good timing, just given where we are as a company and the value accretion that this provides.

1:40:45 Okay thank you and just a quick final one on hedging. You know I guess my question is can you just talk to the aim of the policy here? I guess like what's What currency are you really trying to hedge an outcome to? Because, for example, is there a point to hedge to New Zealand dollars, given the majority of your revenues and earnings are from outside of there? Because if I look at your accounts here, your average Aussie dollar exchange rate, for example, is 88.9. I think the actual average, if you did it at market, was 82. So just wondering, could you just explain what the aim of the policy is, please?

1:41:27 Yeah, definitely. I mean, as with all hedging policies, it's to be able to create predictability as we move forward. And obviously, we report in New Zealand dollars. And we have a hedging policy that stretches out 12 to 24 months into the future to ensure that there's not large volatility. Thank you. Thank you. Your next question comes from Paul Mason with E&P. Please go ahead.

1:42:15 The first one, I was just wondering if you could give some comments on the Cashflow Central rollout with Melio. I think Fiserv said in the last quarterly that there's like 60,000 active SMEs and earlier in the year they said they had 115,000 signed up. So if you could explain a bit about what that pipeline looks like, how one converts from one status to the other and the like. And then the second one, just wondering if you could give us some comments on the initial rollout of Ultra in Australia, where the customers have come from, whether it's like channel or direct and sort of what you're thinking about and how that product sales motion is going to evolve.

1:42:57 Sure. I'll talk about both, Paul. Let's talk first about Cashflow Central. So I think what we said in our prepared remarks is that U.S. Bank, which is the top 10 bank, obviously was one of the bigger banks to deploy in Cashflow Central in the first half of this year, which I think has us excited. Obviously, there's a long pipeline of banks to deploy on Cashflow Central, and we all know that timing is really the thing that we don't always control, but we're happy to see U.S. Bank go because it's a good reference for all of the smaller banks on how to create a great experience. We also know that PMC Bank, another large bank, is also planned to go in calendar year 27. And so that will be another large deployment. So I think overall, we are pleased, you know, that some of these bigger banks are starting to deploy. And I think you know that we continue to believe that as and when that rolls through, it will really be additive to gross margin dollars.

1:43:55 But we, you know, we also believe that there are multiple ways Nelio can grow, and we're excited by the moves they're making on Nelio.com as well. Now, I think your second question, remind me, was with regard to Ultra. And I think with regard to Ultra in Australia, I would say the majority are coming from the back book of Xero. The majority, you know, but we are testing it with new customers and seeing early take-up, you know, as we put it in performance marketing ads. But I think the majority are coming from our back book, Latent Demand, and that's being led by a new motion from Xero this year, which is small business direct sales. So remember, historically, we only really had called on accountants and bookkeepers. But when we have these new products to sell, like Ultra, we do have a small business digital sales motion now within our CX function that reaches out to customers who, in our existing book, who look at the propensity to be the right customer for the offering.

1:44:52 So it's being driven by kind of a new inside sales motion for existing customers. And then for new customers, it's really being driven through both channels. But that is, like I said, it's still relatively the minority of customers who are adopting the product. Thanks a lot. Thank you. Your next question comes from Benjamin Jones with JP Morgan. Please go ahead.

1:45:20 Thanks for taking that question, guys. Just one on Melio and the gross margin there. How should we expect gross margin to trend, particularly as we're seeing Melio users scale over time? And secondly, as we're seeing this result, as you start to improve the penetration, what sort of impact over time do you expect that would have on the gross margin in the Melio business?

1:45:40 Yeah, absolutely. So I'll just comment quickly on that. So we do anticipate Melio gross margin increasing. to continue to expand over time thanks to the tech rate adoption and the use of different options, the payment options that the customers have. I think more importantly the operating leverage on the bottom line is a big opportunity for media as well. So yeah, continuing to anticipate some growth margin expansion as we look forward and continue to Expand Take Rate, Expand Margin, but also get Operating Leverage to the bottom line.

1:46:21 Yep, got it. Helpful. And just on the UK, obviously with Making Tax Digital, we've seen a pretty good print this half. How could we be expecting stuff to trend now that we're sort of through the initial sort of launch of this round of MTD?

1:46:36 Yeah, I think it's a fair question. As we continue through the Making Tax Digital trend in the UK, Naturally, they're getting to smaller and smaller size companies and individuals. So that will be less of a focus area for us. We're really happy and excited with the share of the Making Touch Digital customers that we have managed to attract to Xero. And we see them come in on our simple skew, but we also see them come in on higher skews as well, which is great. But I think to your point, as we look forward into the future, that benefit and that tailwind does increase. due to the fact that they're not our kind of core focus customers.

1:47:19 Helpful. And just a final question on to the brand spend in the US that you called out at the last result. I mean, can you talk us through how that's been deployed to date and appreciate its sort of brand spend and not necessarily performance marketing, but any early indications on effectiveness or how pleased you are with that brand spend?

1:47:39 Yeah, so I would say early days. And just as a reminder, our U.S. brand spend is a multi-year journey in terms of, you know, how long this takes time to attract new customers to Xero. So we are pleased with the initial responses we're getting, the fact that we are seeing an increase in, you know, uncomprompted brand awareness. our Navy brand awareness is increasing which is what we were planning to drive as we spend this through fiscal 27th but I just remind people to think more longer term when you think about the direct impact on US style growth because it is a multi-year journey.

1:48:23 Very helpful. Thank you for taking the questions.

1:48:26 Thank you so much. Thank you. That's all the time we have for our question and answer session. I'll now hand back to Sukhinder for closing remarks.

1:48:36 Thank you everyone for joining us again today. Thank you to Claire for being such a fantastic partner over the past 18 months. You know, we've had a lot of fun together driving this business and we wish her the very best in her next chapter. And then, of course, thanks to zeros around the world who work remarkably hard with great focus every day to deliver for our customers. Thank you for joining the Xero Limited 2027 Interim Results Conference Call. If you have any further questions please contact the Xero Investor Relations Team. If you are a media representative please reach out to Xero's Corporate Communications Team.