Xero Limited

Thank you. Good morning from Sydney, Australia. Thank you for joining our investor briefing today covering Xero's financial and operating results for the half year ending the 30th of September, 2023. I'm Sikandra St. Cassidy. This time I'm getting it right, I think. And I'm with Christy Godfrey-Billy, our CFO. Our first agenda item is an introduction and summary of Xero's performance during the half. I'll then pass to Kirstie to cover our financial results in detail before I finish with strategic themes and Xero's outlook. We'll then move to Q&A. So, moving on to a summary of our results on slide five. I'll touch on a few of the key metrics here, and Kirstie will discuss them in more detail later. Revenue grew 21% to $799.5 million. Headline EBITDA of 206.1 million is up 97.5 million on last year. Operating income of 67.4 million increased 46.7 million year-on-year. This strong operating result drove free cash flow generation, with free cash flow increasing to 106.7 million. This reinforces the strength of Xero's fundamental business and shows we are starting to balance growth and profitability. So now moving on to the two key themes in our H1 performance. I'll talk briefly through each key theme with more details in the next few slides. First and foremost, Xero has continued to deliver revenue momentum. Secondly, we're delivering emerging profitability as we operate more efficiently and effectively. Moving to the next slide. Xero is a macro-resilient business that continues to deliver strong top-line growth. Revenue rose 21% or 20% on a constant currency basis. This reflected subscriber growth of 13% year-on-year, with subscriber additions of 204,000 in the first half. Price changes across both our business and partner edition products were a key driver of ARPU, increasing 6% or 8% on a constant currency basis. While ARPU expansion slowed from 13% in the prior period, this largely reflects first half 23 benefiting from spot FX volatility. This was only 6% on a constant currency basis in the prior period growth, lower than the 8% we delivered this half. I'll now spend a few minutes outlining the regional contributions to this revenue growth. Slide 8 shows continued progress in our Australian and New Zealand businesses. with solid revenue and subscriber growth as we drove further adoption across both channels. The ANZ segment delivered 21% revenue growth, 22% in constant currency terms, with H1, from H1, FY23, outpacing subscriber growth of 13%. ARPU expanded 4% nominally. It was 9% on a constant currency basis, mainly from price rises. Both countries contributed to this, with Australia growing revenue by 22% and adding a further 122,000 subscribers in the half, while New Zealand grew revenue by 15% and added 17,000 subscribers. We see this as a great outcome in regions that already have high cloud accounting penetration. We also hosted our Zero Con event again this year in Sydney, attracting several thousand accounting, bookkeeping, and ecosystem partners from across our markets. XeroCon continues to be an important partner engagement opportunity and highlights the strength and importance of our relationship. Turning to the international segment, we delivered 22% revenue growth, 18% in constant currency terms, and reached 1.67 million subscribers, up 12% compared to H1 FY23. ARPU grew by 8% to 37.9, or 7% on a constant currency basis. mainly driven by price changes. In the UK, revenue increased 23% to $216 million, or 18% in constant currency. Subscribers were up 13% year-on-year, with net additions for the half of $40,000. Subscriber growth in the UK was subdued, largely reflecting a lack of MTT demand and accountants and bookkeepers managing their undeployed or idle inventory. This inventory management by accountants and bookkeepers led to an increase in subscriber volume churn, However, these subscriptions are much lower value, which meant we didn't see this come through on international MRR churn, and the revenue impact was limited. On MTB, we saw the benefit of phase two in the second half of full year 23. This phase is now completed, and we saw this contribute to softer demand for compliance software in the first half. Another factor impacting the half was seasonality, with the first half historically lower than the second half in this market. We continue to see a strong long-term opportunity to digitize small business cloud accounting in the UK and believe we have a strong value proposition, brand momentum that is building, and we'll continue to focus on product and go-to-market initiatives. In North America, revenue increased by 9%. However, this was impacted by a couple noisy items that Kirstie will talk to. Excluding those items, revenue was up 19%. Total subscribers were up 12% year-on-year with net additions of 12,000 in the half. There are a few dynamics at play here. Our U.S. business had good momentum and delivered a good balance between subscriber growth and ARPU expansion. Canada's net subscriber outcome for the half was disappointing. We're working through changes to our team and our sales motions in this market. This has translated to a good revenue outcome but impacted subscriber additions. In our rest of world markets, revenue grew 29% or 27% in constant currency terms, with a proportion of higher value customers in this region contributing to the high revenue growth we delivered. Total subscribers grew 10% year-on-year, with net additions of 13,000 over the half. The largest driver of subscriber growth in this segment was South Africa, where we continue to see good momentum. Before I hand to Kirstie, I want to highlight another key theme of H1 performance. and that is emerging profitability. As seen on slide 10, we have focused on managing our cost base while driving continued revenue momentum. We measure profitability through a number of metrics, but I'll highlight three here. In the first half, our net profit after tax increased to 54.1 million. Our operating income margin increased to 8.4% from 3.1% in the comparable period. Finally, on the right-hand side of the chart, you can see our free cash flow margins increased to 13.3% from 2.4%. Each of these demonstrates that we are focusing on the bottom line as well as top-line growth, and we're really pleased with this outcome. We will continue to focus on managing our resources better to help support operating income growth and free cash flow. I'll now hand to Kirstie to cover the financial results in more detail before coming back to you to cover our strategic themes and outlook.

Thanks, Akinda, and good morning, everyone. I'll now provide some further detail on our financial results for H1 FY24, starting on slide 12. This slide shows AMR in gross profit. The results Zero has delivered show continued growth momentum across the group, demonstrating the value that we deliver to our customers. As you can see on the left, headline AMR increased 19% or 22% in constant currency to more than $1.7 billion. This was driven by subscriber growth of 13% and an ARPU increase of 6% or 8% on a constant currency basis. This metric reflects the annualized benefit of price changes in ANZ and the UK in addition to the subscriber growth that occurred at the end of H1 and indicates an exit rate for our business coming into the second half. Price rises in our North America and rest of world segments are not reflected in this number as they became effective after the half closed. Our high gross margin combined with the revenue result has seen gross profit increase by 22%. The chart on the right shows this trend with gross profit at $700 million for the half. We have remained disciplined as we serve our customers, and this is reflected in an improved gross margin compared to last year of 87.5%. This focus on efficiency is part of our operating rhythm, and we continue to look at new ways to improve and innovate in this space. A great example of this is how we have experimented with generative AI in Zero Central, a customer support and learning site which Vikinda will talk more about later. The next slide is a breakdown of revenue showing the contribution of our core and platform revenues. Core accounting revenue growth of 24 or 23% in constant currency was driven by subscriber growth and after expansion as prior period price changes flow through. Platform revenues grew 21% or 17% in constant currency and remained at 10.5% of operating revenues. The decrease in other revenues largely reflects the reduction in zero-coin revenue as we only held one event in the half versus the three in H123. It also reflected the decisions of Sunset Allocate product as we released Zero Inventory Plus. At a regional level, this reduction in other revenue largely impacted North America, where these items contributed $3.7 million in H1 FY23. As Akinda mentioned earlier, excluding these items, North America revenue growth was higher at 19%. Let's turn to the detail on platform revenues. On this slide are the activity indicators for the three largest elements of platform revenues, payments, plan day, and payroll. While we're differing dynamics across each of these, an overarching theme is that we're still relatively immature, and we see a significant opportunity in flexing this attachment lever. This includes changes to sales motions, pricing and packaging work, and investment in product functionality. On the left, we show that monthly invoice payment value grew 23% since September 2022. We see this as a great opportunity and are focused on improving the user experience to increase customer uptake. For example, continuing to streamline the onboarding and workflow experience. Revenue growth was higher than that of the TPV at 37%, reflecting higher average payment value over the period. and improves economics with our partners as we reach growth milestones. The middle chart shows the number of Plan Day users at the end of each quarter since September 22. This increased by approximately 9% from the prior year period. As we highlighted in our last results, Plan Day is transitioning to focus more on the smaller segment in its European home market. This has impacted the growth rate in the number of employees using Plan Day as we transition between segments. We've now launched five awards of Plan Day's award interpretation tool in Australia, and we're pleased with momentum, although it has limited contribution to this number. The right-hand chart shows employees paid through zero payroll. This increased 10% since this time last year across Australia, New Zealand, and the UK, where we offer this product. While there is more work to do to enable our product to better deliver for customers in the UK and New Zealand markets, there is an element of normalization and growth in Australia following STP tailwinds in prior years. Turning to our FAS metrics, which we show on a half-by-half basis. As we show on the left-hand side of slide 15, ARPUP has increased by 8% over the half to more than $37. Price changes are the largest driver of the increase, followed by FX benefits, noting that FX impacts included in these metrics are on a spot basis, rather than average rates over the period. We also saw some benefits from mix shift. We are more actively turning our focus to improving mix, but it is early days. As the right-hand chart shows, the decline in churn since COVID has been sustained and was 0.94% per month in H1. We did see a slight uptick in churn, which we report on an MRR basis over the half. Moving to the next slide, here we highlight how these SAS metrics reflect the value zero generates. LTV is a high-level measure of the value customers bring to zero over their lifetime, which on average globally is around nine years. The chart on the left shows the expansion in LTV in recent years. Over this period, we've continued to see customers join us, and as we have delivered increased values for them, we've seen them stay with us. This is reflected in the key contributors of LTV, which you can see on the right. Apu is $37.38 and Churn is 0.94%. We measure our efficiency of acquiring new subscribers through LTV to the average cost of acquiring a subscriber or LTV to CAC, as this best reflects the individual value that customers bring. The unit economics we generate in New Zealand and Australia reflects the value that Xero can deliver in a more developed market with an LTV to CAC ratio of 14.6. Moving to the next slide, we break down how these metrics have evolved over the half. Starting on the left hand of this slide, we will show how the drivers of LTV have moved over the half. Moving from left to right, subscriber growth contributed 773 million to LTV. ARPU expansion was the largest driver of the LTV uplift, reflecting price rises across our full product range. FX was also a benefit, with the majority coming from our UK business. The contribution of gross margin improved slightly as we continued to efficiently serve our customers. This is a great outcome. The slight increase in churn was a drag on LTV of $634 million. I want to touch on some of the related metrics which are highlighted in the chart on the right. LTV per subscriber, CAC, and LTV to CAC. You'll also find these metrics in the appendix. LTV per subscriber grew 4% over the half to $3,742, or 3% on a constant currency basis. CAC spend covers three broad areas. the cost of acquiring new subscribers and investing in our brand for future subscribers, initiatives to educate existing customers to encourage retention, and costs associated with upselling and cross-selling to existing customers. The majority of acquisition costs are expensed in the period, in contrast to the revenue from subscribers added, which is earned over multiple years. Tax spend increased 16% as we increased investment and brand recognition, particularly in the UK, through partnering with organizations such as FIFA Women's Football to drive future growth. The CAC per growth ad metric increased by 6% over the last six months. The increase in CAC spend per growth ad is reflected in higher CAC months in the international segment, increasing from 23.3 months in March to 23.5 months in September. However, at a group level, CAC months fell from 15.9 to 15.6, reflecting improved efficiency in ANZs. While we don't expect to reach the same LTV to CAC in our international segment over the long term, we see substantial opportunity to further grow LTV as the benefits of our investment come through as we become more efficient to drive an improvement in LTV to CAC. LTV to CAC was broadly flat at 6.4 compared to 6.5 in March 23. The reduction here was due to the higher CAC per growth add. Now moving to expenses. We completed our restructuring program and worked hard to embed these changes into our business in order to operate with greater clarity, speed, and effectiveness. The outcome of the restructure is reflected in the 14% decrease in our FTE through September 23 from 4,915 to 4,242. This has flowed through our financials with continued improvement and operating leverage driving our bottom line outcomes. we remain committed to our FY24 guidance with operating expenses to operating revenue ratio to be around 75%. There is an element of seasonality to both components of the ratio, which is reflected in our first half through a CAC investment on events like Xerocon and our FIFA Women's World Cup sponsorship and recently announced price changes, which have limited contribution to revenue this half. Let's turn to the detail in our cost base. Sales and marketing costs increased 16% against revenue growth of 21%, which resulted in these costs falling to 34.7% of revenue. Spend during the period included our sponsorship with FIFA and other brand spend. This investment we've made in our brand will take time to translate through to returns as brand awareness and recognition develop. Moving to G&A expenses, these fell to 12.1% of revenue due to cost control. Finally, on product design and development costs, these fell to 32.1% of revenue. This area was where the majority of FTE reductions occurred as part of our restructure, and the fall spent here is largely a foe through of these changes. Total product and development costs, including capitalized costs, were 34.9% of revenue, down from 44.3% in H1 FY23. This coincided with our capitalization rate falling slightly to 40.6%. This movement in our capitalization rate is largely an outcome of timing project spend and the impact of our technology function redesign. Moving to slide 20, here we present a summary income statement for the half, as well as a reconciliation to adjusted EBITDA. Our continued revenue momentum and lower cost base following our restructure contributed to the large increases in operating income and EBITDA this half. There were limited adjustment impacts in this period, with a $2.1 million restructuring charge as we finalised our organisation redesign, a $6.8 million benefit to the P&L from accounting adjustments related to the sale of Waddle, and a $3.1 million of non-cash revaluations. Shifting to the right-hand side, we present a summary income statement for the year. Operating income more than doubled, reflecting our shift to balance and growth and profitability. This flowed through to our cash position, so let's move to the detail there. This slide shows the constituent movements of our free cash flow over the past 12 months, and clearly highlights our shift towards balance and growth and profitability. Taking a look at the key components of operating cash flow. starting with our customer receipts. This is mainly payments from subscribers and tends to follow our reported revenue. Moving across the chart to payments to suppliers and employees. This movement, compared to H1 FY23, includes the payment of redundancy costs totaling $31 million from our restructuring, as well as increased payments for annual software licenses renewals, payments to suppliers for brand spend. While this chart presents a year-on-year view, A consideration for the movement half on half is we tend to pay more of our annual software license renewals in the first half. We saw net cash interest receipts during this period. This reflects higher earnings on our cash and term deposit balances given the current rate environment. I'd like to highlight that there is a divergence here from our P&L as the majority of the interest expense we incur is non-cash amortization of our convertible notes. Income tax payments had a limited impact on our cash flows in the period. We are beginning to utilise our New Zealand tax losses, which you can see in the deferred tax asset movement on the balance sheet. Finally, capitalised costs mainly reflect product development as well as a small amount of investment in physical assets. As I said earlier, we saw a slight fall in our capitalised spend during the half due to timing of our investment spend. This benefited free cash flow. Turning to slide 24, the increase in cash generation was a key contributor to the $136 million increase in Xero's total cash position, including short-term deposits to $1.6 billion at September 30. Our term debt liability reflects entirely the Xero coupon convertible notes that mature in December 25. The reduction here reflects exchange rate impacts, as the notes are US dollar-denominated, partly offset by the continued unwind of discount on the issue. This is a non-cash item. This is reflected in our P&L. Given the flexibility that our convertible notes funding provides us and another half of free cash flow generation, we are comfortable with our net cash position, which has increased by more than $150 million from this time last year. Thank you. I'll now pass back to Secinda.

Thanks, Kirsty. I'd now like to spend a few minutes on the early stages of our journey to become a higher-performing global SaaS company. We're excited as we look forward and are starting to implement some of the principles we discussed in the full year 23 results call. On this slide, you can see these principles which set us up for Xero's next chapter. We talked about becoming more focused, being more dynamic, more measured, and more balanced. We also outlined our multiple levers for growth. Today, I'd like to share some strategic themes that are important as we continue to evolve in the direction of our global aspirations. The first thing we're doing is sharpening our focus on segments and mix as a key lever for growth. Secondly, our U.S. review has finished, and it shows us there is a clear opportunity to be more focused and grow in two key customer segments with more consistent executions. Thirdly, evolving our global leadership team is key to Xero's next chapter, and we've added new capabilities to that team. Fourth, we see AI as a critical opportunity, and it's one that already powers Xero. Our opportunities to invest and experiment further. We have a good understanding of our customers, how they use Xero, and how they work with accountants and bookkeepers. And now it's time to sharpen our focus on Mix, as we seek to improve this over the coming years. Xero generates value through serving small businesses who have a range of requirements, from those with simpler needs, with one or two jobs to be done, to those who have multiple needs and engage Xero as part of their core business activities. Accountants and bookkeepers support customers right across this range. Underlying all of this is Xero's ladder of products, from simpler to more complex, that meet the different needs of customers in these segments. Understanding these segments and how our products align to them enables us to focus on where we should both invest our GTM and product efforts and drive the right solutions for the right customer. We want to be proactive in driving mix. This is a relatively new lever for our business, and as we grow, revenues will seek to better balance mix with subscriber volume. As we sharpen our focus on customer segments and mix, our teams have undertaken a review of the level of customer usage and engagement in subscriptions with accountants and bookkeeper practices that are digitizing. Through this work, we've identified a small group of long, idle, low-value subscriptions that are still undeployed after an extended period and where we no longer expect them to deploy in a reasonable timeframe. By way of definition, we count idle subs as those that have been purchased, largely by accountants and bookkeeping partners, but are yet to be deployed and have tasks initiated on behalf of a small business. As accountants and bookkeepers transform their practices, they tend to buy zero subscriptions in packages ahead of deploying these subscriptions to small business clients. As a result, there's often a natural period during which these subscriptions are idle, and then they are increasingly deployed and actively managed by partners as they utilize them on behalf of new or existing small business clients. We estimate there is a small pool of between 150,000 and 200,000 long idle subs that it makes sense to remove from our overall base going forward. As you can see on the slide, we define long idle subscriptions as those that have been undeployed for more than 24 months and are not expected to deploy in a reasonable timeframe. The majority of the subscriptions are located in our international segment across North America and the UK, with a smaller portion in Australia and the rest of the world. We plan to remove these subs after the end of full year 24 during the first half of 25. Based on the midpoint of that range, as of the 30th of September 2023, these subscriptions had an ARPU of approximately $3.7. And if they were removed at that date, group ARPU would increase by approximately 3 to 5%. The removal of these subscribers is expected to have minimal impact on FY25 revenue. We believe this is the right approach for Xero as we seek to build an even more engaged customer base going forward. Removing these subscriptions will support an evolution of our sales motion by allocating resources towards improving mix and working with accountants and bookkeepers to acquire and deploy their Xero inventory through smaller and more frequent sales motions. Moving to our U.S. review on the next few slides. Over the half, we undertook work to form a deeper and more nuanced view of our U.S. strategy and execution. We continue to see a strong opportunity for Xero to deliver value to U.S. customers. But I'd like to start by acknowledging what we've done less well historically, shown on the left-hand side of this slide. Over a number of years, we've had inconsistent sales motions, such as targeting multiple segments with suboptimal onboarding, frequent North American sales leadership changes, and a varied product and technology investment approach. While our approach has varied over time, our level view of investment in the U.S. overall has been fairly measured, with the average annual net direct investment in the U.S. over the last 10 years sitting at around 30 million New Zealand dollars. We believe this is comparable to a U.S. venture-led growth business. So if I now turn to what is working well, we have better product fit that is desired, and offers value to two key segments in the U.S., small businesses with multiple jobs to be due and the client advisory services segment of accountants and bookkeepers. Our go-to-market approach is steadily improving. We've learned from our previous experience and we're increasingly aligning our sales motions to our key customer segments. And thirdly, our open ecosystem and partnering approach is a differentiator. It serves us well in a market where customers continue to use a variety of platforms and want choice in their app stack. Now I'd like to talk about how it will drive growth going forward. As we now better understand where we offer value, our efforts will be directed towards our two key segments, with investments in the right products, with the right marketing for those segments. Making our product better for small businesses who have multiple needs will enable us to scale ARPU over time. through Xero, and through our ecosystem partners. As we serve the CAV segment of accountants and bookkeepers who want to build their advisory practices, we'll look to leverage our tools that can provide them help in moving up the value chain to advisory. Secondly, as part of this focus on segments, as we said, we plan to remove long-idle, lower-value subscriptions during the first half of FY25 from our U.S. subscriber base. This will enable our sales teams to further focus their efforts on mix, and work with accountants and bookkeepers to buy and deploy inventory in small and more frequent motions. Thirdly, we'll be more targeted in our go-to-market investment. We'll do this by increasing efficiency of our direct product funnel and being more focused on targeting our marketing spend in local U.S. geographies with critical density in our core segments where that spend can be more effective. Additionally, we'll try to increase our execution capability through a revised operating structure designed to better respond to North America's needs. This includes giving our US and Canadian country heads more visibility and accountability by reporting directly to our new chief revenue officer and reducing one management layer. It also includes enhancing our product and technology delivery with more onshore US-based product and engineering support for improved localization. Finally, we'll continue to use our open ecosystem as a point of differentiation. to enable customers to build the solutions that work for them. In a robust, highly fragmented small business software market like the U.S., this partner approach is a key tenet to Xero's value proposition. So in conclusion, we're clearer about the execution path in the U.S. and will be more targeted in how we approach growth. In line with our overall strategy to be more focused and disciplined as a company, our U.S. plan is to invest at a reasonable burn rate relative to the top-line growth we generate. Moving on to our next key theme, the evolution of our leadership team. We've made a number of strategic appointments over recent months to evolve our executive leadership team for Xero's next chapter. This ensures we have the right leadership capability and structure in place to more effectively operate and manage a global portfolio. Each leader is now fully responsible for global functions and brings in-depth experience to help optimize each area of our business. Ashley Grech joined Xero in August as our new Chief Revenue Officer, responsible for our go-to-market functions. This includes global sales operations, regional managing directors, customer experience, ecosystem and partnerships, and revenue operations across all geographies. Before Xero, Ashley was Chief Operating Officer for ReCharge, a payment solution provider, and Global Head of Sales for Square, now Block. Michael Strickman was appointed as our Chief Marketing Officer in October. driving our direct customer and partner marketing journeys across all regions, and aligning our brand, marketing, digital, and communications teams. Michael joined from Uber, where he was Vice President, Performance Marketing and Growth, and prior to that, led global demand generation for TripAdvisor. Dia Jolly joined in April as our new Chief Product Officer to lead our user experience team, product management, and product marketing functions globally. Prior to Xero, Dia was Chief Product Officer at Okta, a global SaaS security provider, and previously led YouTube's advertising monetization product efforts. In September, Dia assumed additional responsibilities for our global product engineering team. Dia is closely supported in her expanded portfolio by Chris Padilano, who joined Xero's senior leadership team in October as Executive Vice President for Engineering. Prior to Xero, Chris was Chief Technology Officer at Realtor.com and previously was an engineering executive at Pandora. These new additions strongly complement our existing tenured and experienced executive leadership team, which includes Damian Coleman, our Chief Legal Officer and Company Secretary, Christy Godfrey-Billy, our Chief Financial Officer, who many of you know well, Nicole Reed, our Chief People Officer, and Angan Soin, our Chief Business Operations and Strategy Officer. Xero's executive leadership team represents a deep and diverse set of capabilities designed to help deliver on our aspirations. We're really looking forward to providing investors with an opportunity to meet and interact with the full executive leadership team at our inaugural investor day in February 2024. As part of the organization's structure changes we've made, Rachel Powell, Chief Customer Officer, Mark Reese, Chief Technology Officer, and Chris O'Neill, Chief Growth Officer, decided to leave Xero to pursue new opportunities. We want to sincerely thank Rachel, Mark, and Chris for their deep and meaningful contribution to Xero, our customers, and our people. And of course, we wish them all the best in the future. Now to finish, I'd like to provide a brief update on our approach to AI at Xero. Xero has always been committed to innovating to help businesses streamline time-consuming and manual processes, while delivering useful and timely insights to help them make more informed decisions. As part of this commitment, AI is a core technology that already powers many of Xero's products. It's important to note that we will always look to protect customers, security, and trust in every solution we launch. Our approach to AI, including the opportunity presented by generative AI, is focused on four key areas. First, reducing customer toil. To help customers run their businesses more efficiently and effectively, we seek to automate and streamline repetitive, time-consuming work. A great example of this is our continued investment in improving bank reconciliations, which now applies existing machine learning tools to populate new contacts that aren't already in a customer's zero contact list, saving small businesses time on repetitive manual data entry. Secondly, we seek to use AI-powered insights to deliver the right insight at the right time to help customers thrive. Our short-term cash flow in Xero Analytics Plus now includes predictions for recurring invoice and bill payments, giving small businesses a clearer picture of a potential future cash flow. Thirdly, we see an opportunity to introduce conversational or next-generation interfaces to assist customer engagement and improve the customer experience. An example of this is our launch of generative AI in Xero Central, which aims to deliver accurate support answers faster by applying a large language model to our array of customer support articles and processes. It's early days in our experimentation here. However, we're seeing good results with a 40% reduction in search time for customers and a 20% reduction in customer experience caseload. Lastly, we see, of course, the opportunity to increase the productivity of our teams using AI, and to move faster for customers. This is where we're evolving and experimenting in our marketing and engineering functions. We see the opportunity to expand our use of AI into the future by further investing, experimenting, implementing, and refining to create beautiful customer experiences. Now moving to Xero's Outlook. Slides 32 and 33 are both slides you're familiar with. I'll start by pointing to the statement at the top of the outlook slide where we've reiterated our statement that we are seeking to balance growth and profitability in our approach to capital allocation. The operating expense and operating income margin guidance underneath this reflects this. As we told you in May, along with reinvestment and strategic priorities, management is targeting an operating revenue to expense ratio in full year 24 of around 75%. The reinvestment will be split across sales and marketing opportunities and product and design. where, as we mentioned, we're continuing on our multi-year modernization journey while investing in value for our customers. Moving to the financial evolution slide, this shows you the directional composition of this ratio in FY24, as well as the longer-term aspiration for these metrics. In full-year 24, we expect to see improved efficiency across each of our expense lines, and we've delivered this in the first half of 24. In the case of sales and marketing, the blacked-down arrow reflects optionality to direct spending to revenue-generating opportunities across the levers I highlighted, of course, with appropriate discipline. Our long-term aspiration is to improve both our operating expense ratio and our operating income margin at zero and the global cloud accounting industry continue to mature, noting that we have not set a specific timeline and there could be variability from period to period as we identify growth opportunities. This reflects the momentum our business has. I'm really excited about how we're positioned, the opportunity ahead, and the multiple levers we have to grow. Xero is evolving, and we are early on the journey to become an even higher performing global SaaS company. Before I conclude, I want to acknowledge our teams around the world, and I really want to thank them for their hard work as we continue to do all we can to support our customers and our partners. That concludes our presentation. I'll now pass over to the moderator for your questions.