Xero Limited

Thank you for standing by and welcome to the Xero Limited Half Year 2025 Results Conference Call. I'm joined by Xero's Chief Executive Officer, Sukhinder Singh-Cassidy, and Chief Financial Officer, Kirsty Godfrey-Billy. 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. Please limit your questions to one question at a time. If you wish to ask a further question, please rejoin the queue. I would now like to hand the call over to Sukhinder Singh-Cassidy, Chief Executive Officer of Xero. Please go ahead.

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 September 30th, 2024. I'm Sukhinder Singh-Cassidy and I'm here with Kirstie, our CFO. Our first agenda item is a summary of Xero's performance during the half year. I'll then pass over to Kirstie to cover our financial results in detail before I finish with strategic priorities in Xero's outlook. After that, we'll move to Q&A. So, moving to a summary of our results on slide five. We're really pleased with this result, and in particular, our ability to deliver strong financial outcomes while executing our strategy with focus and purpose. You'll see that Xero has continued its track record of strong revenue growth with each of our large markets contributing. At the same time, we've delivered a meaningful increase in profitability, and that's led us to once again generate a greater-than-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 25% to $996 million, or 23% in constant currency year over year. Adjusted EBITDA of $312 million was up $107 million, or 52%, on last year. Together, the strong operating result and improved free cash flow generation resulted in a Rule of 40 outcome of 43.9, up by 10.3 points year over year. Continuing on to the next slide, we're going to talk about Xero's track record. Xero is a macro resilient business that consistently delivers strong top line growth, and you can see it in the chart on the left. The charts in the middle and on the right show subscriber growth in ARPU. We've provided both reported and underlying subs in ARPU on the slide. However, I will talk to underlying, which excludes the impact of the removal of long idle subscriptions. You will recall that we identified the need to remove unused long idle subscriptions almost a year ago. I'm glad this program is now complete with 160,000 subscriptions removed. You can see contribution to revenue growth was balanced across subscriber growth up 10% year-over-year and ARPU expansion up 11%. Subscriber additions were 401,000 year-over-year, reflecting double-digit year-over-year growth in each of our large markets. Underlying net additions for the half were 186,000. Price changes across our markets were a key driver of ARPU expansion, along with better payments revenue and some mixed benefits. I'll now spend a few minutes outlining the regional contributions to our revenue growth. As I said earlier, we saw each of our largest markets, Australia, the UK, and the US, make a strong contribution. Australia and New Zealand continues to deliver strong revenue growth, demonstrating the importance of this region for us. As I said, I'll talk to these outcomes on an underlying basis, or before the impact of the removal of long idle subscriptions. We show both outcomes on the slide. We delivered 24% revenue growth year on year. Within this, subscribers grew 10% and ARPU grew 11%. Australia made a strong contribution with revenue growing by 27%. Subscribers were up 11% year over year, adding a further 103,000 underlying net subscribers and a half. New Zealand revenue grew by 13% with net additions in the half of 9K, reflecting the level of penetration in this market. Overall, this is a great outcome in a region 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. In the half, we're also pleased to have announced the appointment of Angad Soin to the MD of ANZ roles. Turning to the international segment, which is home to two of our largest markets, the UK and the US, we're again pleased with the results. Both of these markets were strong contributors to the 25% revenue growth, 23 in constant currency, that we saw. Within this, subscribers grew 11% and ARPU grew 12%. The UK delivered strong revenue growth with good momentum in subscriber growth. Revenue increased 26% or 22% in constant currency terms. Subscribers were up 11% year on year, with net additions of 49,000 and a half. This reflected progress in cloud penetration in the absence of any regulatory tailwinds, which shows the opportunity we have in this market. Now that the new government has confirmed MTD phase three, we expect some further tailwinds in subscriber growth. While many of these customers who will adopt MTD for income tax are non-employing SMBs, they are important for Xero and for our AB partners to serve. We will provide functionality to meet their needs through our lower tier cash book product. At the same time, we'll maintain our focus on adding higher value subscriptions for our primary segments. North America continues to see good momentum, with revenue increasing by 25%. Subscribers grew 10% year on year, with net additions in the half of 12,000. US subscriber growth was solid in the half, in a half that is seasonally weaker. In Canada, subscriber growth was limited, reflecting the current continued subdued backdrop with a lack of adoption, momentum, and tailwinds for cloud. We have successfully restructured our business to align with the backdrop and are seeing better efficiency in that market. Rest of World delivered another period of robust revenue growth also. Revenue grew 23% or 22% in constant currency. Total subscribers were 12% up year on year with net additions of 13,000 and a half. South Africa was the largest contributor. So in summary, in our international regions, you can see the clarity of our strategy as we focus on the 3x3, while continuing to support growth opportunities in our other markets. The next slide brings all the key financial outcomes together as we balance growth and profitability. If you move from left to right, the chart on the left shows the meaningful change in adjusted EBITDA year-on-year, up 52%. This contributed to a strong free cash flow margin of 21%, which you can see in the middle chart. Adding this to the revenue growth in the chart on the far right, where we use the 23% constant currency metric, is the result of our Rule of 40 outcome of 43.9%. This shows how we've continued delivering profitability while at the same time adding value for customers and generating strong top-line growth. Now I'm going to turn it over to Kirsty to pick up in more detail.

Thanks, Akenda, and good morning, everyone. Before turning to the details, I want to echo Sikinder's commentary on our H1 FY25 financial performance. We have delivered a strong financial result underpinned by disciplined capital allocation that supported our continued delivery a rule of 40 outcome for a second half. So let's start by taking a deeper look at top line growth starting on slide 11. We are delivering broad-based revenue growth across our portfolio with strength in both subscription and platform revenues. This slide shows the breakdown of our revenue growth between core accounting revenues and platform add-ons. Core accounting revenue growth was 25% or 24% in constant currency. This reflected both subscriber growth and ARPU expansion. Platform revenue growth accelerated to reach 28% or 27% in constant currency and contributed 11% of operating revenues. The acceleration here reflected stronger payments performance. The decrease in other revenues largely reflects our exit from workflow max, partly offset by higher zero-con revenue as we held two events in the half versus one last year. The continued strength of our revenue growth reflects both the momentum in our business and our focused execution to drive both subscriber and ARPU growth. So let's turn to that. This slide shows our continued strong AMRR performance alongside its key drivers, subscriber growth and ARPU expansion. AMRR passed $2 billion, reflecting our continued top line momentum with 22% growth. As a reminder, this metric reflects the annualized benefit of our subscriber base and ARPU as at the 30th of September, and it's based on FX rates at that time. On the right-hand side, you can see the underlying contribution of subscriber growth and ARPU expansion to this outcome. This excludes the impact of long idle subscriptions removed in the period. On this basis, you can see the balance between the two drivers during the period, with ARPU contribution expanding to reach 11.1% in constant currency this year, while subscriber growth was 9.7%. This shows our continued focus on driving both volume and also value to support strong top-line growth. APU, along with our other SAS metrics, were impacted by the removal of long idle subscriptions in this period. To explain this impact a little further, these subscribers were low value. This meant that while removing them reduced headline subscriber growth, it increased APU. To assist in understanding the trends and drivers of our performance during the half, as Sukinda mentioned, our presentation refers to underlying metrics. So this excludes the impact of removing the long idle subscribers. Now please refer to the appendix of the pack and our interim report for further details. Now that this process is complete, our go-to-market teams can focus more on solving the multiple jobs to be done by our small businesses to drive max. So let's look at how this is flowing through in Apu in more detail. Apu growth remains strong, as you can see on the left-hand side of slide 13. As we show, price changes remain the largest driver of the increase in ARPU, followed by changes in mix. The improvements in mix include the impact of removing long idle subscriptions. Removing these subscriptions contributed $1.43 to ARPU growth. In this bucket, we also realised a small benefit from some customer migrations associated with changes to our product ladder in Australia and the UK. The changes made are focused on providing a strong foundation for our go-forward growth by making it easier for both new customers and our sales teams to identify the correct product for the particular small business. These plans were launched in Australia in July and in the UK and New Zealand in September. We have seen some early positive signs in Australia with new customer product mix and our business edition products reflected an increased uptake and higher end plans. However, it's early days and more work is required across our go-to-market engine to build out our capabilities and incentives so we can use this growth lever effectively. Now moving on to platform contribution where we saw a small benefit to APU, this largely reflected improved payments performance. So let's turn to the detail on slide 14. This slide shows the activity drivers for our main contributors to platform revenue, payments, payroll and plan day. We saw strong growth in payments, partly offset by slower growth in payroll and plan day. The clarity provided by our strategy, in particular our focus on winning the 3x3, is starting to improve execution and momentum in our platform offerings. At our last results, I talked to areas where we see opportunities to drive growth here and we have made some progress. Firstly, our product ladder changes went live in the UK and New Zealand at the end of the half. These add value for customers by including certain payroll functionality, depending on the plan, in order to help customers adopt and use this product. However, it is early days. Secondly, we targeted investment and product functionality to improve the customer experience. This has been a key focus in our payments product, where we are rolling out more ways to pay, including buy now, pay later functionality, as well as streamlining the process both for small businesses and the end customer, through one-page checkout and continued onboarding improvement. The improvement in focus and execution is evident in the strength of our payments performance. TPV growth has accelerated compared to last year, up 34% year-on-year. Revenue growth for the year to September was even stronger at 65%. This incorporated both the improved volumes and better unit economics. as margins with our partners improved as we reached key growth and product development milestones. The middle chart shows employees paid through zero payroll. This increased 6% since this time last year across Australia, New Zealand and the UK where we offer this product. There has been strong payroll uptake in Australia over the 10 years we've had this product to market, with now more than 2.5 million Australians paid through zero. Driving adoption in the UK and New Zealand will require more effort. Our latter changes in these markets are a first step in this process. However, there is further work to do, both in improving product market fit for different use cases, as well as evolving our go-to-market motions for this product. The right-hand chart shows the number of planned day users at the end of each quarter since September 22, which increased by approximately 7% from the prior year period. PlanDay has transitioned its focus back to its European home markets, and we are starting to build momentum. However, this will take time to flow through. We will continue to invest with discipline and focus in our platform products, where there is tight alignment with our 3x3 strategic priority to solve more of the key jobs to be done for customers. This will support our ARPU growth in this space and improve the value we deliver to SMBs around the world. The value that SMBs place in Xero continues to be reflected in our churn metrics on slide 15. We continue to monitor the economic backdrop closely through both internal metrics, such as our Xero small business insights, as well as net business formation rates and broader macroeconomic indicators across all our regions. Across these indicators, we can see that small businesses are facing a complex backdrop and managing it well, particularly in our home ANZ markets where net business formation has held up well and hiring trends remain positive. This is also reflected in our churn, with only one basis point increase half on half to reach 1%. This reflects only a slight uptick in MRR churn from the all-time low we reached post-COVID and remains below our long-term pre-pandemic average. This partly reflects the significant value that Xero provides to our customers by helping SMBs manage their cash flow. Turning to slide 16, LTV is a measure of the value customers bring to zero over their lifetime, which at a group level is over eight years. This chart highlights how the balance between APU and subscriber growth we delivered resulted in a $1.5 billion increase in LTV over the past six months. As we create long-term value, we aim to do so efficiently. So I want to touch on some of the related metrics presented in the middle of the slide. LTV per subscriber, CAC per gross add, and LTV to CAC. LTV per subscriber grew 9% over the year to $4,063 in line with ARPU growth. The increase in CAC spend per gross add was largely offset by ARPU expansion. This resulted in LTV to CAC only falling slightly to 6.3, reflecting a slight contraction in ANZ. This region continues to be our most efficient market with and LTV to CAC of 14. The strength of unit economics here reflects the value that Xero can deliver in a more developed market. While we don't expect to reach the same LTV to CAC in our international segment, over the long term, we expect to see an improvement. Albeit, it may move around as we see specific opportunities to invest to capture the long-term opportunity. Moving to costs, and you can see the downward slope in each of the cost buckets on slide 17. which shows the flow through over the last year of our organisation restructure, as well as scale benefits as we remain disciplined in our capital allocation. This has been partly offset by planned reinvestment in line with our strategy, particularly in product. There is still more product reinvestment which is expected to flow through in the second half. I'll talk through this shortly. Starting on the left, sales and marketing costs increased 15% against the revenue growth of 25%, which resulted in these costs falling to 32% of revenue. Spend during the period included hosting Xerocon in London and Nashville, which contributed 1.9 percentage points to the ratio. Excluding this, sales and marketing as a percentage of revenue was 30.1%. Investment focused on our international markets in particular, with a higher digital performance marketing investment. This was partly offset by lower fee for sponsorship cost and continued headcount efficiency. Now moving to product investment. Product design and development cost as a percentage of revenue fell 3.4 percentage points to 28.7%. There was a difference between our gross product cost and our P&L that I'd like to highlight. Total or gross product and development costs excluding depreciation and amortization grew 19%. This was greater than our P&O expense growth of 11%. The higher growth in total investment reflects our allocation of capital to drive product diversity in our 3x3, particularly in the lead-up to Xerocon London and Nashville. This resulted in our developers spending more time on releasing new product features for customers, which drove a 3.4 percentage point increase in the capitalisation rate. This was the main driver of the difference between our P&L and gross product spend, and this was one of the reasons for the moderation in our P&T OPEX guidance for the full year. Sekinder will cover our guidance in more detail. Capitalisation rates can fluctuate depending on the phase of the development, the resources allocated, and the nature of investment. So for example, we may have phases during the year where developers are focused on research, developing new product, or where we focus on reviewing existing code base. This translates through to fluctuations in our capitalization rate. Finally, on G&A expenses, these fell to 10.5% of revenue, reflecting robust cost control. To help you understand the drivers of our investment, the next slide looks at our total expenses by functional components. There are three key areas that we invest in over the first half to support our strategy. people, product, and marketing. Starting with people, staff costs were the key driver of spend increases. There are two components here. In line with our focus strategy to win on purpose, we have implemented a new performance management framework. This has included an increase in performance linked remuneration. Now, our hiring has been targeted, focusing on key domain experts to strengthen our capabilities, increase our capacity, and enhance overall product delivery. This talent tends to be located in higher cost markets, mainly the US. Secondly, new product development, which is largely reflected in our capitalized costs and therefore reduces P&L expenses. As I said on the previous slide, we had higher capitalization rates and this has flowed through here. Finally, marketing. Investment to date has been primarily in our brand marketing, particularly in our international markets where awareness is low. Michael Strickman, our CMO, has brought new capabilities and is wiring our business up to better identify, target and convert opportunities across our channels. As we dial up these capabilities, we will become more dynamic in our capital allocation in this area, particularly through digital channels. So wrapping this up, we will continue to invest in these key areas, which is reflected in our full year guidance for operating expenses as a percentage of revenue to be around 73% in FY25. which Sukhinder will talk to in more detail. Slide 19 breaks down the near doubling of our free cash flow to $209 million, highlighting both our continued strong growth and the operating leverage a SAS business model delivers. Taking a look at the key components of free cash flow. So starting with customer receipts, where we continue to see strong growth. This is mainly from subscriber and ARPU growth and trends closely following the growth in our reported revenue. including the benefit from the flow-through of early price changes in Australia. Moving across the chart to payments to suppliers and employees. The prior period included 31 million of redundancy payments from our restructure. Adjusting for this, underlying growth here was around 86 million. This was partly offset by growth in share-based payments associated with our investment in people with a specific performance focus. We continue to generate net cash interest receipts during the half. The improvement here reflects increased cash balances from our convertible note refinance alongside operating cash generation and higher effective rates. I'd remind you that following our convertible note refinance, we will see increased P&L interest expenses, but these will mainly be non-cash amortization. However, we will begin to pay US $15 million annually of cash interest expense with our first payment occurring next half. Income tax payments had a small impact on our cash flows in the period. We are monitoring our tax payments carefully as we utilise our accumulated New Zealand tax losses. We currently have 46 million remaining of New Zealand tax losses and have begun planning for a tax payment profile with $45 million of prepaid tax expenses to date, which you can see in our balance sheet disclosures. Finally, the increase in capitalised costs reflected our investment in the 3x3 and the increase in capitalisation rates I mentioned earlier. Altogether, this resulted in a 7.7 percentage point increase in our free cash flow margin to 21%. Improved cash generation has further strengthened our balance sheet, as you can see on the next slide. The increase in cash generation alongside the net new funds from our convertible note refinance were the key contributors to the $692 million increase in Xero's total cash balance. Including short-term deposits, we currently have around $2 billion at the 30th of September which is invested at market interest rates. Our term debt liability entirely reflects the 1.625% coupon convertible notes that mature in June 31. This has had some one-off impacts in our P&L this half. This is attractive funding as it provides optionality for inorganic investment at a lower cost than bank debt with limited cash impact. Similar to previous notes, we have mechanisms in place that provide us flexibility in managing the dilution through our call spread and the choice whether or not to settle in cash or shares. Given the flexibility that our convertible note funding provides us, the continued improvement in our cash generation and the growth we are delivering, we have a strong balance sheet with our net cash position increasing by $373 million from this time last year. Thank you. I'll now pass back to Secinda.

Thanks, Christy. Now moving on to strategic themes. I'll briefly revisit our full year 25 to 27 strategy and update you on a few recent moves we've made. As you know, our vision and purpose are constants at Xero. Successfully delivering on these is key to achieving our aspiration, which I'll cover in a few moments. Our winning on purpose strategy, which you saw us lay out at Investor Day in February, has four key pillars. Win the three by three, build a winning GTM playbook for Xero's next chapter, Win the Future, which is about focus, best, and innovation. And lastly, Unleash Zero and Zeros to Win. We're making great progress executing on our strategy with focus and purpose. We've made a number of moves in the last six months. There are three key moves I want to spend some time on, which show our disciplined approach to capital allocation that is closely aligned to our strategic priorities. Firstly, we've accelerated our product delivery, as shown at our zero cons in London and Nashville. We delivered important product features to help customers across our three largest markets, Australia, the UK, and the U.S., complete their three most important jobs to be done, accounting, payroll, and payments. This included launching a new embedded bill payment solution in beta for our U.S. customers powered by Bill. I'll talk about these in more detail on the next slide. Secondly, in September, we announced the acquisition of SIFT Analytics, a leading global cloud-based reporting, insights, and analytics platform. This is an example of where we have used purposeful M&A to accelerate our strategy. SIFT will deliver best-in-class capabilities to enhance Xero's insights, reporting, and analytics for the benefit of our customers. We expect to complete this acquisition soon, and I'll talk more about what SIFT offers in a moment. Thirdly, we made a series of changes to help build a winning GTM playbook. During the half, as we said, we completed the removal of long idle subscriptions to support the evolution of our sales motions. We also simplified our subscription plans, making it easier for new customers to find, use, and grow with Xero. For the majority of customers who will see no change in price, we will migrate them over the coming months. With our new plans in place in Australia for a couple of months, we have seen positive signs of product mix in our new customer growth with increased uptake of our higher-end business edition plans. These represent early steps in our longer-term journey to improve product mix by putting the right products in the hands of the right customers at the right time. Of course, in addition to these three key moves focused on our 3x3 and GTM playbook, we are allocating capital to the long term. This half, we continued our focus on strategic investments in AI and mobile as we look to win the future. We're excited about the opportunity in this space, including the launch of our GenAI-powered smart business agent, Just Ask Zero, which helps small businesses and their advisors run their businesses more efficiently. This went into beta in August, and we're really pleased with the early feedback we've received, with the doctors keen to do more with Jax. And we're also enabling our people to move faster for customers and helping them do the best work of their lives as we unleash zeros to win. During the first half, we introduced a new performance management framework intended to drive focus and connection to our purpose and strategy through a robust goal-setting process. So you can see our investment is disciplined and aligned to our strategy. Coming back to our investment in our three by three, on the next slide, I'd like to talk in more detail about the product investments we made in the last half. As I said, we accelerated our product delivery. I'd now like to touch on some of the products we added. Before I do, I'd like to reiterate that it takes time for this to translate to revenue growth, as we build awareness with customers, leverage our new product ladders, and enhance our GTM motions. This slide shows the results of our investments to complete the three most important jobs to be done for our three large markets. In core accounting, we've continued our momentum in the U.S., adding more bank feeds, improving bank reconciliation, and expanding Avalara coverage. We've also improved our U.K. tax offering for partnership tax beta and an integrated practice management tool beta for tax work. In payroll, we've launched a beta payroll manager dashboard in the U.K. and continue to expand our payroll capabilities, focusing on non-traditional work hours. We're also excited to announce today Xero has signed a deeper partnership with our existing payroll partner in the U.S., Gusto. This will enable us to deliver an embedded payroll solution for U.S. customers, allowing them to manage payroll within Xero by leveraging Gusto's technology. The deepening of our existing relationship with Gusto is in line with our 3x3 strategy to provide a more seamless experience on Xero for these important jobs. Like our bill announcement earlier this year, we have only just signed this agreement, and there's work to do to build these capabilities over fiscal 25, but we wanted to share with you how we are moving with pace to execute our strategy. Payments is one of our biggest opportunities, and as I said, the beta of our partnership with Bill is with customers now. We've also launched Tap to Pay in the zero mobile experience, and we're adding to the number of ways that customers can be paid through our product with the addition of online bank transfers in the U.S., as well as buy now, pay later capabilities with Klarna. So we're really excited about the value we've added for customers, and we'll continue to unlock opportunities in these core areas to deliver more value for our customers and support revenue growth. Now, as you know, we have a build, buy, or partner approach to investing in product, which brings me back to SIFT, a great example of where we've used purposeful M&A to unlock value for customers. On this slide, we've presented the key features of SIFT, which I'll cover briefly, but I'd also encourage you to watch the product demo linked to our investor center. SIFT is best in class for enhancing insights, reporting, and analytics for our customers. It's easy to integrate into Xero, and the majority of its customers are already in our largest markets, so it's a great fit. SIFT accelerates our delivery of insight for small businesses and also for their associated ABs and advisors. The product provides small businesses a simple way to use advanced tools, which include advanced forecasting and modeling tools, allowing a small business to review and clean financial data for accuracy, customized reporting through visualization tools that allow small businesses to compare to industry benchmarks, and forecast cash flows up to 10 years out. And a standout feature in CIF's product is this interactive live view. This is perfect for discussing performance and making real-time updates. Finally, the ability to consolidate entities and combine organizations with multiple currencies makes life easier for small businesses who have evolved to have these needs. You can see we've been very busy over the half as we continue to purposefully allocate capital and execute our strategy to add more value for customers and support revenue growth. And this brings me to our FY25 outlook. Total OPEX guidance remains unchanged. Total operating expenses as a percentage of revenue is expected to be around 73% in fiscal year 25. FY25 product design and development costs as a percentage of revenue is now expected to be broadly similar to FY24. We'd previously indicated we expected these costs to be higher. As Christy discussed, our updated outlook in part reflects the higher capitalization rate in the first half of 25, damping the impact of our investment on the P&L, alongside the timing of headcount additions, including key domain expert hires, being later than expected. Of course, in addition to this, we continue to pursue our aspirations that we first shared with you on our investor day in February. These are to be a world-class global SaaS business from our very strong position today. We have the opportunity to double the size of this business and deliver real authority or greater performance. And we will focus on high-quality growth, which is a balance between subscriber growth and ARPU expansion. As I've said before, these aspirations are powerful and purposeful. and we will continue to pursue them aggressively over the short, medium, and long term. Wrapping up, there are three key themes from today's presentation. We continue to enjoy strong revenue growth with all large markets contributing. We continue to deliver a greater than will afford the outcome, and we are continuing to execute our strategy with focus and purpose. Before I conclude, I want to acknowledge again our teams around the world, and really 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, and I'll now pass over to the moderator for your questions.

Thank you. We will now have a short 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. Please limit your questions to one at a time. Your first question comes from Bob Chen with JP Morgan. Please go ahead.

Hey, morning, guys. First one just for me, just around the guidance for the year, obviously kept your operating expense ratio guidance there. I mean, it sort of implies that you're looking to maybe invest a little bit more in sales and marketing. So maybe could you talk to what's worked very well in terms of sales and marketing so far and how you're planning to set that up into the second half and beyond?

Okay, what I might do is, thanks Bob, I might take the first bit just to sort of talk through the guidance and then maybe hand to Secinda and she can talk around particularly what Mike's finding. So yeah, I mean we did continue with our guidance to be around 73 and that will be not only between looking at CAC but also it will be product because the second part of it now is that we will be similar to last year so that's getting our products and technology to around, you know, last year it was 30.7 and we were, you know, down at 28.7 for this half. So that will be part of it and, you know, that will be, as Linda said, around capitalisation rates, potentially not being as high as they were in the first half where we were really pushing for product delivery and for the zero cons, but also just around the timing of hiring of those domain experts So maybe, Sikandra, if I hand to you.

Sure. So I think your other part of your question, Bob, was like what are we feeling or how are we feeling about sales and marketing? So maybe I'll take both parts. So first of all, Ashley, as you know, who leads our partner sales channel, I think has, first of all, delivered two big programs that we talked about. The removal of long idle subscriptions, you know, that took some work to move through with our partners and our sales team. The second, of course, was the delivery and simplification of new plans into the market that can help our customers to understand our features and grow with them. And those, I think, have been two main focus areas, as you know. She continued to do that while delivering on the subscriber growth you see here. So I think we feel good about the work the partner channel has been doing both to deliver short term, but also set us up for success longer term. In Mike's area, I think we spoke at Investor Day about the opportunity to enhance and optimize our performance marketing channels, and we feel really good about the work that's happening there. I think that includes better measurement and attribution of our various initiatives, really, I'd say, more understanding and usage of tools like promos, A-B testing. There's just a lot of science I think that is going into the building of our performance marketing muscle so we can be best in class at doing kind of that PLG type growth motion. The other thing that Mike and his team are working on is continue to improve the attribution of all of our spend, including our brand spend. That's work we're continuing to do and get more scientific on. And lastly, standing up that B2B partner marketing function that we actually talked about as being critical to the growth of the partner channels. is having an improved B2B marketing function where Mike is supporting the channel's efforts. So those are things we feel good about and they're very much in line with sort of the strategy we laid out in February.

Your next question comes from Gary Sheriff with RBC. Please go ahead.

Morning, Sikinda and Kirsty. Just wanted to talk to the price rises versus your churn expectations. Certainly looks super impressive across support in terms of the ARPU growth. versus the churn you've delivered. Is that in line with expectations or perhaps a bit better? Just trying to get a sense of any insights or learnings, particularly post that September year end in the first six weeks in terms of churn. And do you think there's going to be any geos which might be more price sensitive, say, than Australia?

I'll start with the numbers and then you can do your answer if you want to at the end. I mean, we're really pleased with our churn. Having churn a few, excluding the idle subs, at 1%, it was at 0.99 six months ago. So we are really pleased with where we are with churn. In the past, we haven't really seen a lot of churn occur when we have put price rises through. So yeah, it's not flowing through from an MRR churn perspective.

Maybe I'll take the question more qualitatively. You noted two things. We both removed long idle subs and we simplified our packages. I will say both of those things often cause people to look at their total inventory. We described that we expected that to happen. That typically happens around price changes and rises. In this half, as you know, we also made a more strategic move around packaging. And I think, so I think it's fair to say the combination of things always have our partners looking at their use of our product. And we're okay with that. I think we believe that, you know, that's the right thing to be doing longer term. So, you know, I don't think as Christy said, we're worried about top line insurance from any kind of fundamental basis, but I will note there are always changes. And we put through a lot of change this half with how our partners, you know, are using or not using their long idols as well as new packages. And I do think that That leads many of our partners to just think about their total inventory, and as I said, we've expected that.

The next question comes from Eric Choi with Darren Joey. Please go ahead.

Oh, hey, thanks very much, and hey, congrats on the two years as well, Secindra, and good last result as well, Kirsty. I'll have one question, but I was wondering if I could do a quick follow-up before that just on Bob's question on the costs. Can we just check, like, mathematically, you're sort of implying $120 million step-up, second half versus first half, nominally, in terms of total cost, only just because we've never seen that sort of nominal step-up in your cost base before. And then I was wondering if I could ask a question, a proper question on the US after that.

OK. So I suppose the first thing to note is that we say that it will be around 73. We will only get to 73... If we see that there is the opportunity to invest in a particular area of the business, probably either in CAC or product, that will drive either shorter-term or longer-term revenue, depending on potentially whether or not it goes into performance marketing brand or product development. I think there are different components from a product perspective. that you do need to consider. So it is around CapEx. CapEx is nearly at the top of that range that I've always spoken to with it being around 40 to 45. And so you probably could expect for that to fluctuate a bit in the downward direction. And then when we are looking at adding real domain experts, those that we have just hired at the end of the half, and then those that we're looking to add during this half, that does make a bit of a change to where we're going from a product perspective. And I suppose, just remember too, I think I said before, the product last year was at 30.7% of revenue, and we sit in the first half at only 28.7, sitting in our P&L. So We do have to really, you know, look at the way in which we invest in product. So it's not going to flip all into, you know, we're not looking at spending the number you said I think was 120. It could be lower than that. All in CAC, you know, we are giving you those two data points, one around product and then one also around the 73.

And Eric, this is Sue Kinder. Do you want to go to the second part of your question around US CAP? Can you just restate it, please?

Yeah, sure. Sorry. So, I mean, just been trying to chat to a bunch of US accountants, and I guess the general feedback is maybe there's a little bit of discontent with Intuit because they've launched low-end bookkeeping services. Sometimes people mention there's a big pricing differential now between you and Intuit, especially since they charge per user. And and sort of had some feedback that you guys would benefit from marketing like you guys did back in 2013 to lift brand awareness. So I guess my question, are you hearing the same sort of things, Akinda, given you're closer to the ground? And if that's right, and to your point on spending CAC and marketing to drive revenues, what should we as a market be tracking as, I guess, signposts of US success? Should we be expecting like a sub-acceleration at some point? Is it you know, a certain revenue number for the U.S., that would be helpful. Thank you.

Hi, Eric. Bearing in mind we don't give guidance, I think your question is well taken. First of all, I would say we feel good about our momentum in the U.S. and the TAM opportunity for Xero to be a very strong solution for customers and ABs. And I think we've continued to signpost that, you know, as well as the I'd say the meaningful lift in product acceleration that we believe we are putting through the U.S. Now, I will note that whether we announce Bill or Jax or end-of-period reconciliation, which we announced at Zerocon, many of these things are just hitting beta or expected to hit at the end of the year. So recognize that from the time we kind of say something is going to be available, we're still working through betas in many of these products. But nonetheless, we feel good about our product momentum. Now, you turn to the other question, which is, well, what does that imply about CAC or marketing investment? First of all, we believe we have two opportunities we need to balance. Number one, to always be disciplined allocators of capital. And for me, that means even if you're planning to accelerate your investment, you still want to make sure that investment you believe can be sticky, that it's attracting the right kind of customers and that you're ready to make it. And so that's not, that not only implies product as an example, then implies, you know, Mike's models, Mike's attribution, making sure we are wired up and, you know, able to spend, you know, diligently, not just willy-nilly. So, of course, we believe that there's an opportunity and we are going after it. But I would note that, you know, we will press acceleration buttons when we feel we're ready. And even then, we will think about how to do that in a disciplined way. But we feel good about our momentum and our positioning relative to any other players in the market.

Your next question comes from Tom Beto with Jordan. Please go ahead.

Thanks for the opportunity to ask questions. Just, I guess, another one on OPEX. I'm interested just to understand what probably turned out a bit differently in the first half relative to your expectations in terms of your OPEX and just what you might be doing differently in the second half relative to what you were planning at the start of the year, I guess. where I'm coming from is that, you know, you probably did hire fewer people or the timing of your hirings were just not quite when you thought they might have been during the first half. You might have hired them subsequently, but you've obviously got a benefit there. Are you just investing a bit more potentially in the second half? Or I guess the other question is, you know, could you just be a bit conservative there with your guidance?

Yeah, thanks, Tom. So, I mean... Yeah, we obviously started the year thinking that products and technology would be higher than it was last year. And now we have softened that guidance to being similar. And so therefore, if I look back to what I thought the half would deliver, I suppose it was a pleasant surprise around the product velocity. The team did such an amazing job getting all those products out for the zero comms. And that did have an impact, a positive impact on our P&L, having that higher capitalization rate. And then it is really important when we look at hiring, particularly when it's these real experts that we don't rush into it, that we find the right person and then pay them the right amount. So the timing of that has been potentially a little bit slower than we may have thought in the first half. But then, as I was saying, some of those roles have come on just before the end of the half, and then we have a strong pipeline for the second half. So I think it does, obviously it's given us benefit, because now to hit around that 73, we have the opportunity, but just really doubling down on the fact that we will only allocate capital in a really disciplined way, But it does give us the optionality to be able to do the things that Secinda was just talking around. If we see an opportunity in CAC to help really drive the business in the short term or longer term, then we have, I suppose, been able to put that aside. But then also, we have set around 73. So we will do it in a very measured way.

Your next question comes from Lucy Huang with UBS.

Please go ahead. Thanks, and good morning, Sikinda and Kirsty. I just wondered if you could give us a bit more colour around ARPU growth in Australia, and particularly from plan and product mix changes. I know it's early days, but any colour you can give us on how much of an ARPU uplift you're seeing, say, in Australia from people migrating up to higher BE plans or whether there's been a sizable increase mix and shift across I guess ignite and grow or ultimate and just to give us a sense as to you know how fast you could see the velocity of plan upgrades coming through the business and then whether this presents an opportunity for other markets like us over time to do more better bundling yeah I mean it's it is it is early days and you know as Sikinda was talking around earlier

There was two things. There was bundling, which has effectively simplified the way in which small businesses or accountants and bookkeepers can engage with us to ensure that they're getting the right product and the right sort of bundle of product within that. And then we have also put through some price increases in Australia. I think it has been... the dominant reason in Australia for why ARPU has grown between sort of the price changes and also just looking at, you know, movements in particular packages. But then also, you know, pleasingly in the half, we've also seen some, you know, beneficial pickup and things like in payment. So maybe, Sukunda, do you want to?

Sure. Look, I think there are two ways to think about this. If you think about, obviously, the way we go to market in product, or the way we go to market with our packages. One is digitally, right, so self-serve, and the other is the partner channel. I would say our sales teams, as Ashley pointed out, are just starting to learn the new motions and responsibilities of thinking about how to segment their own accountant and bookkeepers' customer base to figure out who might be more appropriately served, let's say, by a BE SKU than a PE SKU. So I'd say that most sales teams right now are piloting new motions And quite frankly, we're integrating data, right, to help our customers understand or AB customers understand what their book of business looks like and who might be a candidate for a BE sale. That is both new customers and back book. But the new customer motion is almost easier, right, because it's asking on the way in. So I just recognize that I think the sales team is piloting new motions, which is great. They most easily affect the front book. It takes more work on the back book. And if you just think about the flow through of mix across an entire base of customers, we have almost 4 million subs. We do have 4 million subs. It will take a long time for that to move through the entire base, which is why we always give you signals. But to expect it to move R2 meaningfully, you know, it's just bit by bit because it's moving through front book, through different pilots with different sales channels. And obviously our goal is ultimately to get to front book and back book. But we sequence these motions. and the learning of our sales teams to exercise them.

Your next question comes from Kane Hannon with Goldman Sachs. Please go ahead.

Morning, guys. Just one on R2 growth as well. I think you delayed the migration of subscribers in all the UK to that new plan stack. I think the reason was so that those subscribers don't get two price rises in one year. So when I think about the next round of price iteration, potentially in 2025, Does that rule out putting a price rise through next year as these guys migrate, or are you happy to continue running two tiers of subscribers for a while?

Thanks, Kane, for the question, Sister Kinder. As you know, the biggest thing that's happening with pricing and packaging is us increasing our sophistication in this area, having stood up a new function over the past year, right? We brought in a gentleman named Tony King, ex-Intuit and ServiceNow, who has a lot of understanding of pricing and packaging strategies longer term. So first and foremost, I think the thing you noted is the thing that's most important. So first thing we wanted to do as we introduce new pricing and packaging is to make sure that for our existing customers, we have a sensible migration path for them and try to take care in thinking about what the effects are, packaging changes on them over the course of this year and next. You know, all I'll say is that, you know, we're not going to discuss our pricing strategy for next year, but we are very thoughtful, I think, about, you know, the value we add for customers and when we put through price or packaging changes. And, you know, I feel good that we've got a team now that thinks about that, not just for this year, but for next year and the year following. And so we can understand the impacts over multiple years.

Thank you.

Your next question comes from Andrew Gillies with Macquarie. Please go ahead.

Thanks, guys. Can you hear me?

Yes.

Perfect. Just one for Kirsty, please. Just around the share-based payments stepping up to around 9% of sales, you've mentioned US comps as a guide before. I think Intuit's long-term target is around 10% of sales. But how should we think about that kind of over the medium term? Should we be thinking low double-digit, mid-double-digit? That'd be great, thanks.

Yeah, so I mean, I know some of the benchmarks, if you look over in the US, can be sort of around that high teen, even low 20s from a percentage perspective. So even though we've just got to just under 9%, it's still very, very under where we would be from a US benchmarking perspective. And as I mentioned, that is where we are getting a lot of our domain experts that are coming to Xerox. So are we going to reach 20? I doubt it very much. But, you know, it's a good way of being able to pay. We need to pay relevant to the market and in the US. Share-based comp is part of it. Now, one thing I do want to note, though, is that it is a way that we report which is different to many US businesses. We include share-based comp in our OPEX expenses. So when we're talking... 73% or anything around EBITDA, all those sorts of things, it includes share-based payments, which US companies generally don't include. So we see it as a real cost to the business, hence why we do show it within that operating expense. Skinda, do you want to add anything?

Yeah, no, I think you noted it. Like, look, we treat our share-based compensation very carefully. We think it's a valuable currency for zeros and for investors. And so, as Christy noted, I think including the 73 is important and also being very targeted. You know, I think that we have always been disciplined allocators of even our equity. And so while that number may go up, I think we want to use our equity pools wisely for the greatest impact for shareholders and for customers.

Your next question comes from Paul Mason with E&P. Please go ahead.

Hey, Tim. Thanks for the question. Just on the UK, I just wanted to understand your making tax digital sort of product positioning a little bit more. I think you've launched Cashbook for making tax digital, but then also launched Tap to Pay, which looks like a great feature in theory for like a tradesperson that might be affected by the next stage as well. But... from my understanding, tap-to-pay wouldn't be available on Cashbook. And so are you guys thinking about bringing out another product as well? Or is the current one like the main product targeting the next volume of potential subscribers? Yeah, just color around those things.

Sure. So first of all, I think, Paul, our goal with making TaxDigital, of course, to be ready for both ABs and SBs. I think what we announced is that we will provide a lower-tier product using the Cashbook sort of baseline. And first, we've announced what we'll do with ABs, but our intention is also to make sure we have a direct offering. So we believe that SBs directly should be able to take advantage of that SKU, as well as ABs, who, of course, service a whole breadth of clients from sole providers on up. So we think we'll be ready with something for both and take advantage, of course, of probably a lower-priced cash book offering.

Your next question comes from Nick Basile with CLSA. Please go ahead.

Morning, everyone. Thanks for the opportunity. Just two things. One, on the payment side, you called out and saw very strong growth in both TPV but also revenue. Just if you could provide any more colour on the commentary on that side. And then second question, just on the outlook, I think a lot of people have been asking around the cost side. They're just interested, is there anything in the new-term horizon on revenue that makes you more cautious or any colour that would impact the run rate momentum, because it is accelerating at the moment, so I'm just trying to understand the guidance.

Okay, I'll start and then jump in at the end if you want to add any more colour. So just from a payments perspective, I mentioned there were two different reasons for that fantastic 65% year-on-year growth. Now within slide 14 of the deck, you can see there that you know, we have got that total payment value, so that is growing. That's the underlying business that's flowing through is growing and was at 34% year on year. We also, within our contracts, which, you know, we haven't disclosed previously what, you know, the specifics of what we do have within our contracts, but, you know, we did have step-ups, and so with volume, we're therefore able to achieve better pricing from our perspective, which has also been a contributor to that 65%. So that's on payments.

I think the only thing I'd add on payments, Christy, is that obviously the other work to really accelerate payment volume is onboarding friction, more ways to pay, which we identified, tap to pay, buy now, pay later. So it turns out that both payment coverage is an important driver of TPV as well as reducing the friction, you know, to attach payments to our invoicing products. So I think those improvements alongside whatever our, you know, better take rates are, are the explainer of kind of the contributors to both sides of the payment.

And then just on your second part of your question, Nick, around sort of revenue expectations and is that the way that we're going to get to 73 by basically diving our revenues for the cost basis? works up a higher percentage because of it. I mean, I'm not going to give you guidance for the year, but I suppose just a couple of data points. Xero has, for many years now, aspired and has been a high-growth company. And so we have no desire to not be a high-growth company. In fact, within our aspiration, we do mention us absolutely seeing doubling the business. So that's the first point. I think the second point is, If you look at AMRR growth, that is a bit of an indicator for our future revenue. Now, it's not quite as simple as it would have been perhaps before Mike Strickman started and we started to do more promos, because now there is a bit of a separation between AMRR and revenue, just from a timing perspective, because when you put through a promo, you don't see the full amount of the revenue come through, but it is included within the ARPU and therefore the AMRR until that three to six month promo has wound itself out. So, you know, we've got AMRR growth of about 22. You could haircut that a tiny bit for that promo. And so, you know, hopefully from that you can gather that the way that we're going to get to 73 is not by dropping revenue. It's really by ensuring that we're putting the right level of investment for short-term and longer-term growth in our top line, primarily through CAC and also product.

Your next question comes from Rowan Sundram with MST Financial. Please go ahead.

Thank you. Hi, Secinda and Kirsty. Just the one from me. A question on the subs growth outlook and how confident are you that you can continue to grow at the rate that you're growing at that high single-digit rate, what levers do you feel like you have available to pull to maintain that in an environment where we are seeing rising insolvencies and it's still tough out there for small business, but you're still growing subs. So, yeah, just any thoughts you had around that would be great. Thank you.

Sure. Well, first of all, thank you for the question. Remember that we enjoy a portfolio of markets and a portfolio of market conditions, including very highly penetrated cloud businesses, which can still continue to grow like Australia. New Zealand is clearly slowing, and you've seen that in our numbers. And then markets with lower cloud penetration. The U.S. is still, relatively speaking, a lower penetration market. The U.K. is somewhere in the middle. And then you have a confluence of different factors. Certain markets have different economic conditions, yet the U.K., as an example, is now going to enter a period of regulatory tailwind again. And we've talked before about when regulatory tailwinds exist in markets, The cost of acquiring a sub for everybody typically is more efficient because there's a time-constrained impetus to migrate to a cloud solution. And then we've talked about the levers in our own business, not just the external macro conditions and whether or not there's still room in the market, but also the levers available to Xero, whether that's product driving TAM expansion, whether that's marketing sophistication in how to drive CACs, whether that's the use of, you know, new kind of muscles like B2B marketing. So I think we believe that between the market characteristics and Xero's relative levers, that there is opportunity for us to continue to be both a, you know, strong driver of subscription growth and then, of course, ARPU expansion. So they're puts and takes by market, but we continue to feel like there's enough quivers in that toolbox now Arrow, whatever you want to call it. Arrow's in the quiver. I'm sorry I didn't get that right. To feel good about our long-term prospects.

And I think just to add on to that, I mean, through different changes, through COVID, through different macroeconomic environments, we have shown the resilience of the growth of zero because a zero subscription is needed in both good and bad times. So that should be no concern about growth.

Your next question comes from Roger Samuel with Jefferies. Please go ahead.

Hi, morning. My question is on your underlying subscriber growth. Just wondering if there was any disruption during a period because you were trying to remove the idols, you know, get along idol subs from the back book. And if we zoom into the UK, it looks like the subscriber momentum has improved in a half, plus 49,000 subs. And I'm just wondering if as a function of more marketing campaign, given that, you know, the making tax digital for income tax is not coming in anytime soon yet. So, yeah, just wondering what's driving the subs momentum in the UK.

Sure. And, Roger, I'm sorry. Can you repeat the first part of the question? I caught the second part, but just repeat the first part first.

Yeah, just wondering if overall, especially in the international market, if there's any disruption to your supply of growth, given that you got rid of a few of the other stops. Got it.

Okay. Yeah, sorry. So I think the way I would think about it is we obviously track gross production in all of our businesses, and I think that remained healthy in H1. I think what was true, though, is it took a lot of sales capacity to to manage these conversations with partners. And I think we noted earlier that while we're not concerned about churn, I would say partners definitely took a look at their inventory and we're managing conversations. So I think that our growth production activity remains strong, but certainly it took energy and effort from our teams to manage through these programs of change. And I would say our partners, I think, will continue to look at their own product mix and their use of inventory. So maybe you see that more in things like churn or what package they're on or things like that. Even as we said, we don't see a long-term problem or issue with churn. That's more the way you would see it reflected. In terms of the UK, I think that it was just a half of sales execution, solid sales execution. We announced the appointment of Kate Hayward under Alex as our MD around the beginning of the year. And I think it was just a year, a half of focused execution, a new leader in place that we're excited about and who continues to really add to our bench strength in the market and hopefully is an indication of the focus we put on the importance of that market. So I don't think there was anything else going on, but actually just focused execution. Now, the last piece is you noticed our sales and marketing costs are up. So clearly we are allocating dollars, right? you know, Mike's team and so on, are allocating dollars to our most strategic markets. That is for sure going on.

Your next question comes from Ross Barrows with Wilson's Advisory. Please go ahead.

Thanks. Good morning, Linda, Kirstie. I just wanted to explore the use of contractors a little bit. I think on slide 18, you called out that headcount costs were up 17%, and that did include contractor costs. I also think you mentioned there was a focus on the Americas with respect to contractors. So could you perhaps elaborate, I guess, on the contractor strategy more broadly and if the US will get a greater share of that investment? Thanks. Yes.

So if you have, the easiest thing to do is really to have a look at Note 5 in the interim report, and that clearly shows the consultant and contractor cost. So that has gone up by about, $20 million over the half. Now, particularly within product and technology, that is a way in which we can get resources quickly and deploy them for a particular product or project. And so that is something that we have used and will continue to use. It also, of course, gives us flexibility with our cost base because it's a tap that you can turn on and off with more ease than if you have FTEs.

Yeah, I think the bigger thing to read through between the 17% and 3% is what we talked about earlier, which is we are making targeted hires. And those targeted hires tend to be more expensive. And when we are looking at experts, as an example, let's say bolstering our Gen A IT, is it likely that some of that expertise is in the U.S. market, which by its nature is more expensive and, quite frankly, has more stock-based compensation? Yes. But I think the contractors may be like, it's a tool. I think the thing to read through that's more important is that 3% growth than actual headcount. But correspondingly, some of the headcount we are hiring is more expensive. That's what you should read through most of all.

Your next question comes from Siraj Ahmed with Citigroup. Please go ahead.

Hey, Sukhanda, Kirstie. Sukhanda, you sort of have commented on this through the call, but just a bit surprised with the weakness in Australian sub-scrolls, right, net ads, right? Are you seeing that because of the pack? I'm just wondering whether packaging changes is impacting gross ads in Australia or is it just, you know, it takes, I think it's too much focused on changes and second half should be better? And on the flip side, UK was strong, but just given making taxes, it's a secondary market focus. Do you think accountants are going to be focused on that and that can impact subs momentum heading into 26? And just one quick thing for Kirstie. CAC is sort of understated because of the promotions, right? How are you thinking about the LTV to CAC because you're dealing with 90% promotions. That's not in your CAC number. I just need to understand that as well. And it's very chill and tired for those six-month promotion users. Thanks.

Sharaj, it's like three questions.

Four. Four.

Okay. We're giving you a bit of a hard time. I'll take the two quickly and then turn to Kirstie. So, first of all, I would say we are pleased with Australia underlying subs growth. You know, again, remember the high penetration of this market. So I don't think we look at, I think it was double-digit sub-growth, if I'm not mistaken.

We added 103.

We added 103, but 10% or, yes, yes, yes. So I think we think of it as quite a solid result. I don't think we're displeased with it. On UK and what making tax digital means for ABs, look, first of all, making tax digital is important to AB. They want to work with a solution provider that can help them service all of their SMDs. Sole proprietors, right, they have their own book of business. Sole proprietors, small proprietors, you know, medium-sized proprietors, large proprietors are a lot of time businesses. And so I think it's quite important to them that there is a solution that, you know, can cater to all and that makes them efficient in their workflows. So we think it's important directly to be able to make sure an AB can provide have all of its needs met for making tax digital and non-making tax digital clients on one platform, and they continue to tell us that. We also think it's important to understand that we are a key player in the market. We know small businesses, whether they're a primary segment or not. Many sole proprietors come to Xero today and use our solutions, so we want to make sure that there's an available solution for them as well. So I think it is vitally important for us to be there for both types of customers.

Okay, so on the next part, it was around CAC and the fact that promos weren't included within a CAC cost. So they're not. I suppose the way in which we advertise or market those promos is, however. And the promos that, so Mike's been, you know, he was talking around it at the Investor Day. He has continued to do a lot of experimentation on different things. Promos, you know, different ways of being able to target particular sectors that we want to or segments of the market that we want to get to and so promos is a tool and his toolkit that he can use. Now they're all short-term and so therefore if you think around you know that the average lifespan of a zero subscriber is now over eight years. If we do a three-month promo to get that subscriber in for eight years and it has, you know, it has been generated through the use of a promotion, then, you know, to me that seems like quite good economics. So, you know, it will be continued to be used, but obviously we are tracking the outcome of that, not just at the time that we actually get the subscriber, but then also through its journey to ensure that we don't see an uptick in churn through those promotions. I mean, you can see from an MRR perspective, like we haven't really seen churn pick up in the last six months. But, you know, it's something that we will definitely continue to monitor incredibly closely.

There are no further questions at this time. I'll now hand back to Secindus and Cassidy for closing remarks.

First of all, we always appreciate when you show up, give us your time and ask great questions. So thank you once again for everybody who's been on the call. We appreciate you and really the time you've taken and your support of our business. Thank you so much.

Thank you for joining the Xero Limited Half Year 2025 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. Thank you. You may now disconnect.