Xero Limited

Good morning from Sydney, Australia. Thank you for joining our investor briefing today covering Xero's financial and operating results for the full year ending March 31st, 2024. I'm Sikindras Nkasti and I'm here with Kirstie, our CFO. Moving to our results. Our first agenda item is a summary of Xero's performance during the full year. I'll then pass to Christy to cover our financial results in detail before I finish with strategic priorities and Xero's outlook. And after that, we'll move to Q&A. So, moving to a summary of our results on slide five. We're really proud of this result, and in particular, it shows you we are capable of executing towards our future aspirations. You'll see that Xero has continued its track record of strong revenue growth, and at the same time, we have delivered a meaningful increase in profitability, and that's led to us achieving a rule of 40 outcome. I'm going to touch on the key metrics here, and Christy will discuss them in more detail later. Revenue grew 22% to $1.714 million, or 21% on constant currency terms. Adjustability of $527 million is up $225 million, or 75% over last year. Together, the strong operating results and improved free cash flow generation resulted in a rule of 40 outcomes of 41%. Moving to the next slide, Xero is a macro-resilient business that consistently delivers strong top-line growth. This year, we saw growth balance between subscribers and ARPU, with subscriber growth of 11% year-over-year and ARPU of 14%. Subscriber additions were $419,000 in the year. Price changes across both our business addition and partner addition products were a key driver of our bill increasing 14% or 10% on a constant currency basis. I'll now spend a few minutes outlining the regional contributions to this revenue growth, as well as the features we delivered on the product side to support this. Slide 7 shows the continued strong revenue growth in our A&Z segment. We delivered 22% revenue growth year-over-year. Within this, subscribers grew 11% and ARPU expanded 11% or 9% on a constant currency basis, mainly from price rises. Both countries contributed to this, with Australia growing revenue by 23% and adding a further 205,000 subscribers in a year, while New Zealand revenue grew 15% and added 38,000 subscribers. This is a great outcome in a segment with high cloud accounting penetration, reflecting our strong brand presence and product offering in these markets, alongside our ability to continue to bring small businesses to the cloud and offer more services. Turning to the international segment, we delivered 24% revenue growth, 20% in constant currency terms, and reached 1.8 million subscribers, up 11% year on year. ARPA grew by 17% to $41, or 11% on a constant currency basis, mainly driven by price changes. In the UK, revenue increased 24%, or 20% in constant currency. Subscribers were up 11% year over year, with net additions of 107,000. This was a pleasing outcome in a period where there were no MCB tailwinds. In North America, revenue increased by 17%. However, there are some noisy items affecting the comparison. Adjusting for them, revenue grew 22%. Total subscribers were up 10% year-on-year, with net additions of 38,000 for the year. Canada's net subscriber outcome video was subdued, largely reflecting a lack of adoption tailwinds. We've made some GTM changes, which I'll touch on later, in response to our execution there and the cloud accounting backdrop. In our rest of world markets, revenue grew 26% or 25% in constant currency terms. Total subscribers grew 12% year-on-year, with net additions of 31,000 in the year. The largest driver of subscriber growth in the segment was South Africa, where we continue to see good momentum. So now moving to the next slide and the product investments we made in FY24 to support this growth. The revenue growth we've delivered across our regions reflects the value of our product and the continued enhancements we've made. This slide shows our investment in completing the three most important jobs to be done, core accounting, payroll, and payments, in our three largest markets, Australia, the UK, and the US. In core accounting, we've made great progress. In the US, we've upgraded our coverage to extend to more than 600 direct bank fees. We've also increased the number of banks that can use our bank statement extraction feature within HubDoc, which extracts data to populate into Xero. We've also made a number of improvements to zero tax in the UK in the last year to support compliance changes. In payroll, the work we've done over the past 12 months across product and engineering is making it easier for small businesses to onboard. We've also improved functionality in our UK offering for non-traditional work hours and pension needs. Alongside this new functionality, we have also modernized the payroll monolith, breaking it down into microservices and removing 50% of unused code. This is a great achievement and highlights our focus on delivery for customers while modernizing. Payments is one of our biggest opportunities and our new partnership with Bill in the US will allow us to drive deeper functionality as part of our 3x3 strategy. We've also made it more intuitive and frictionless for small businesses to sign up with Xero for payments. In November 2023, we became the first major small business accounting software company to launch e-invoicing in the UK. We will continue to unlock opportunities in these core areas to deliver value for our customers and support revenue growth. Moving to the next slide, which shows how this translates into profitability. The chart on the left shows the meaningful change in adjusted EBITDA year-on-year, up 75%. This contributed to a strong free cash flow margin of 20%. You can see in the chart on the far right that adding this to revenue growth where we used the 21% constant currency metric, resulted in our Rule of 40 outcome of 41%. This neatly shows how we've shifted to delivering profitability without moving away from adding value for customers and generating strong revenue growth. Before I hand it to Kirstie, I want to summarize the actions we've taken against the commitments we made to you. FY 2024 was a significant year of change for Xero and our team. as we set the foundation for our next chapter of growth. We called out three key opportunities or goals in my first earnings call at CTO roughly a year ago. These were to target more balanced, profitable growth, to be more focused in how we allocate resources, and to start on our journey to use new levers of growth. Underpinning this was a commitment to build on our capabilities and evolve towards more performance-based culture. We've made a number of moves in FY24 to deliver on what we said we'd do. As I've talked about, we've successfully balanced growth and profitability through continuing our strong revenue growth while right-sizing zero and delivering a real affordability outcome. There are a number of proof points of where we've been more focused in our allocation of capital. Key among these were our sharpened focus in the U.S. and the discontinuation of a number of non-core businesses such as Waddle and Workflow Max. We've started on our journey to use multiple levers for growth and a focus on improving mix through onboarding enhancements and becoming more dynamic in our CAC allocation. However, what I'm most excited about is the new capabilities we've added and the steps we've taken to evolve our culture to be even higher performing and purpose-driven. So as I said, it's been a big year and we're proud of what we've accomplished. But it doesn't stop here. We've made some moves in early FY25, which I'll speak to later, But for now, I'll hand to Kirsty to cover the financial results in more detail before coming back to you to wrap up.

Thanks, Secinda, and good morning, everyone. I'll now provide some further detail on our financial results for FY24 starting on slide 13. Before turning to the details, I want to echo Secinda's commentary on our FY24 financial performance. We have delivered a strong financial result with a pleasing Rule of 40 outcome. This slide highlights the key internal metrics we use to monitor our success, as we identified at our Investor Day. There are three key things you will notice about our financial performance this year. Our continued growth momentum, the value that customers place in Xero, both of which are reflected in our ARPU growth and also Net Subscriber Addition. And finally, our focus on balancing growth and profitability, shown in our OPEX ratio and significant revenue per FTE improvements.

So let's start by taking a deeper look at top line growth. This slide shows a breakdown of revenue between our core accounting revenues and platform annals.