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 the 31st of March, 2026. I'm Sue Kinderson-Cassidy, CEO of Xero, and I'm joined by our CFO, Claire Bramley. In FY26, Xero delivered strong revenue growth of 31%, added more than 500,000 new customers, and generated $757 million in adjusted EBITDA. We did this while closing and integrating Melio, which speaks to what this business can do when strategy and execution are aligned. There are three key themes to our FY26 performance. First, sustained revenue performance, strong EBITDA outcomes, and a US business that is now clearly accelerating. Second, payments and AI innovation both scaling fast, which is deepening customer penetration and delivering real measurable value for users now, and has tremendous potential going forward. Third, continued capital and operational disciplines that underpinned our FY26 execution and gives us confidence in our ability to deliver in FY27 also. Okay, let's take a look at our financial results specifically. Operating revenue grew 31% to $2.75 billion and adjusted EBITDA rose 18% to $757 million. Claire will take you through the details shortly, but I want to draw out two things here. First, the quality of our organic story. Organic revenue growth was 21% or 19% in constant currency terms, and organic adjusted EBITDA growth was 30%. That is the underlying engine firing at zero and delivering strong returns. Second, the Rule of 40 outcome was 48.5%. This shows both the strength of our revenue growth and the quality of our free cash flow generation. On a pro forma basis, adjusting for the full year impact of Melio, it was 36%. I'll touch on this later. Now, turning to regional performance. Our flagship markets in Australia and New Zealand continue to deliver robust growth. ANZ revenue increased 18% to $1.39 billion, or 17% in constant currency terms, supported by 7% customer growth to $2.75 million, and a 9% increase in average revenue per customer to $48.89. Australia was the primary growth driver for revenue growing 20%. Customers were up 9% year-on-year, adding a further 165,000 net customers. This reflects both smart execution and the structural expansion of our per-customer revenue opportunity. We are excited to launch a new ultra-subscription tier in Australia in the near future. This is focused on providing more complex, mid-sized customers with core accounting functionalities to support their operations. New Zealand grew revenue by 10%, with net additions of 21,000 customers, up 3% year-on-year. Despite this being low growth relative to our less penetrated market, it is double the level of growth in small business creation over that period. This shows our ability to lead in a highly penetrated market by digitizing small businesses and expanding our services. Our international segment saw a step change in scale this year as we expanded our footprint in the U.S. with the addition of Melio to the group. International revenue grew 47% to $1.36 billion, excluding Emilio, organic revenue growth was a strong 25%, reflecting the acceleration of our global growth engine across multiple markets. The UK delivered 26% revenue growth and 14% customer growth, with net additions of $166,000, benefiting from adoption of MTD for income tax in the second half of the year. In the U.S., organic growth accelerated to 30% through disciplined execution in target segments and improving product market fit. And then, of course, Melio's payments contribution was significant, with combined revenue reaching $332 million, up 240%. I will discuss the U.S. performance in more detail later. Our other international markets delivered another period of good revenue growth, with revenue up 21%. Total customers grew 12% year-on-year, with net additions of 44,000. South Africa was the largest contributor. The pattern across international is clear. Execution improving, momentum building, and the U.S. opportunity coming into fruition. So to quickly summarize the financial outcomes of this year, we have consistently delivered strong EBITDA growth. This is translating to significant free cash flow, which is up five times in the last four years, and we've continued to deliver Rule of 40 outcomes. We anticipated falling below Rule of 40 on a pro forma basis as we incorporated Melio, and we're clearly on track to get that back above the Rule of 40 by FY28. We're already at 36% in FY26, which shows you we're well on track. I'll now pass to Claire to take you through the numbers in more detail. Thank you, Sakinda, and good morning, everyone.

Fiscal 26 has been a strong year for Xero. In my first year as CFO, I have seen consistent execution across the entire business. We continue to deliver robust revenue growth, improve monetization, and accelerate profitability. The financials speak clearly to this, so let me walk you through them. Operating revenue reached $2.75 billion, up 31% year-on-year in headline terms and 21% on an organic basis, which excludes the impact of Melio. Vero remains a consistently high growth business across a global portfolio with a recurring revenue base that continues to deliver and consumption-based revenue streams which are expanding rapidly. AMRR closed the year at $3.3 billion, up 26% on a pro forma basis. This is a strong forward signal of where the business is heading. Customers reached 4.92 million at year end. with 506,000 net additions across the year, up 11% in headline terms and 10% on an organic basis. As Sikinda outlined, the acceleration in our international segment is gaining pace. ARPC reached $55.44 at the group level, up 23%, including radio, and 14% on an organic basis. Melio's contribution here shows the structural improvement BillPay delivers to our customer unit economics. Gross profit reached $2.31 billion, up 23% year-on-year or 21% on an organic basis, generating an additional $436 million in gross profit dollars. We are focused on absolute dollar growth, not margin percentage, and on that measure, we are clearly delivering. The 5.1 percentage point reduction to 83.9% is entirely the impact of incorporating the payments-led Melio business. On an organic basis, growth margin held at 89%, consistent with prior years. Moving to the ARPC bridge, where Melio has delivered a step change. We have an average revenue per customer measure as this captures the full Melio value and demonstrates that zero subscription model is linked to the customer or business entity, not the number of seats. Headline ARPC increased $10.36, up 23%. Five drivers explain this movement. Firstly, price changes were the largest organic contributor. reflecting the value we have added through new features and capability improvements. Importantly, we delivered this growth while holding prices flat on our entry-level Ignite plans in Australia, the UK, and New Zealand throughout fiscal 26. Our sophisticated pricing strategy aims to get customers onto the right plan and maximize long-term value. USMIX was a strong contributor. with direct channel momentum and increased focus on value-based selling driving business addition growth. This was partially offset by changes to payroll inclusions in Australia and making such digital mix headwinds in the UK. Platform attach and other reflected continued growth in invoice payments, the account receivable side of our payments business, with adoption increasing across our 3x3 markets, and supporting strong TPV growth of 26%. Melio added $4.24 to ARPC at the group level. In the U.S., this contribution is a more significant $50 uplift per customer. This illustrates the structural benefit of the bill pay model, higher revenue per customer, driven by consumption-based transaction revenue, not subscription pricing alone. Tukinda will come back to this shortly. Finally, FX movements were a tailwind, largely reflecting the benefit of a stronger Australian dollar. MRR Chan for the full year was 1.14%, close to the long-term pre-pandemic average of 1.15%. The recent uptick is driven by mix, not a change in underlying customer behaviour. As we scale our direct channel, we are widening our funnel, which does result in acquiring some customers who churn at higher rates than those from our accounting and bookkeeping partners. That is a deliberate strategic choice. Direct channel customers generate stronger absolute LTV because ARPC is higher. Cohort churn gives the cleanest read on platform health by excluding acquisition mix effects. This metric was largely flat year on year at 0.81%, confirming that our existing customers remain highly engaged. Cohort Chan gives us the confidence to keep investing in direct channel acquisitions. These customers come in at higher ARPC, and as they start using the product, they stay. You can see the benefits of this higher ARPC and scaling of customer growth without compromising efficiency in LTV. Total LTV expanded $3 billion, or 17%, to reach nearly $21 billion. These metrics exclude Melio. Total CAC per gross ad was $735, up only slightly year on year, supporting a healthy payback period of 14.4 months. LTV is up. CAC is stable and payback remains efficient. International LTV per CAC improved to 3.5 times, an early signal that our focus on higher value customer acquisition is working. It's important to highlight as we begin investing in US brands, this will create a near-term drag on international LTV to CAC ratio, which is the right trade-off. By building our brand, we aim to create a more efficient acquisition engine for the long term. Operating expenses as a percentage of revenue excluding transaction costs were 70.5% in line with guidance and down from 71.7% in fiscal 25 and 73.3% in fiscal 24. The trajectory is consistent and the discipline is compounding. Revenue per FTE reached $571,000. up 21% year on year, with FTE flat on an organic basis. AI is already improving productivity across product development and go-to-market, and you can see that directly in this metric. Our conviction is that AI enables us to do more with what we have, meaning that we can drive strong growth without increasing headcount, all while accelerating product delivery, creating optionality for reinvestment including US brand investment, and still delivering operating leverage. Physical 26 clearly demonstrates we can do all three. Moving to the individual crosslines. Across all three, we delivered operating efficiencies on an organic basis. Sales and marketing grew 17% organically, reflecting a deliberate increase in performance marketing investment in our digital channels, particularly in the US and UK. We are now very good at targeting the right customers in the right markets as the efficiency metrics demonstrate. Product design and development grew 14% organically or 18% including capitalized amounts as we continue to invest in global talent and domain expertise. The higher capitalization rate in fiscal 26 is a direct consequence of strong product velocity with more features being delivered at a higher cadence increasing customer value, and our ability to monetize. On G&A, the increase is driven by two factors. First, Melio carries a proportionately higher G&A base, reflecting its relative maturity and the inclusion of certain payments operation costs. As Melio scales, we expect to see leverage benefits. Second, the accounting treatment of executive option and sign-on grants flags at our fiscal 25 results. Excluding both, organic T&A growth was 16%. Moving to the bottom line. Sustained revenue growth and disciplined capital allocation delivered adjusted EBITDA of $757 million at a 27.5% margin, including NEO. On an organic basis, the growth is very strong at 30%, clearly showing the compound effect of revenue momentum and cost discipline. That discipline translated directly into free cash flow generation of $554 million. Turning to the balance sheet, total liquid resources at the end of the year was $1.9 billion, with a net debt position of just under $400 million following the completion of the Melio acquisition. That is a materially different position from the media announcement when pro forma net debt to EBITDA was approximately 2.3 times. It sits at 0.5 times today. A meaningful deleveraging in a short period of time, reflecting the quality of our free cash flow and the discipline we have applied to the post-acquisition balance sheet. The strength of this position enables us to proactively manage our capital structure. Today, we are announcing a program to offset up to $550 million Australian dollars of share-based compensation dilution. This will not only offset the upcoming fiscal 27 equity allocations, but also allows us to opportunistically neutralize historical grants that vest this year. This is capital efficient for all shareholders and reflects our confidence in our future cash flow generation. The strength of our balance sheet allows us to offset this dilution while at the same time allowing us to invest fully in our future and our ongoing investment priorities. Throughout this program, our balance sheet strength will be maintained. If it was fully completed today, our net debt to adjusted EBITDA would reach only 1.4 times. Let me now explain how this fits within our capital allocation framework. Our framework is disciplined and straightforward. Strong free cash flow generation provides available capital deployed across two clear priorities. First, investment to support Rule of 40 outcomes in line with our fiscal 28 aspiration. Product development through our build, partner, or buy approach and go-to-market investments. Every dollar is tightly aligned to our strategy and directed towards areas with the clearest path to return on invested capital. Second, After funding our growth ending, we have capacity to deploy capital for long-term shareholder value. Our balance sheet is strong and our free cash flow trajectory is only improving. Given the strength of that position, as I mentioned earlier, the board approved the program to offset share issuance from share-based compensation costs. This framework will evolve as we approach fiscal 28 and the business generates more free cash flows. We will keep you updated as decisions are made, as we will review this on an annual basis. On Outlook, I want to start by reiterating our confidence in our fiscal 28 aspirations. We have strong revenue momentum, and as you will see from our fiscal 27 guidance, a clear pathway to more than doubling group revenue from fiscal 25. Our pro forma rule of 40 sits at 36%. and we are well on track to be back above the rule of 40 in fiscal 28. Within that, we continue to expect Melio to reach run rate break even on an adjusted EBITDA basis in the second half of fiscal 28. To help you build a framework through to fiscal 28, let me turn to our fiscal 27 guidance. As we signaled earlier in the year, we are now providing both revenue and adjusted EBITDA guide for fiscal 27. Revenue is guided to be between $3.62 billion and $3.73 billion. This outcome is expected to be supported by a balance between ARPC expansion and customer growth, including some initial monetization of new AI features. While in payments, we will benefit from continued strong revenue growth, which for context grew 56% on a pro forma basis in fiscal 26th. On adjusted EBITDA, we expect to deliver between $860 million and $920 million in fiscal 27. There are a couple of drivers within this guidance to note. Firstly, this includes incremental US brand spend of up to $55 million New Zealand dollars as we commence a multi-year program to raise brand awareness sustainably in that market. Secondly, we expect a higher than historical weighting towards H2 reflecting the timing of investment spend across caps, the phasing of Melio's break-even trajectory, and our normal H2 revenue seasonality. To close, fiscal 26 confirms three things. Our growth is durable, our monetization is strengthening, and our operating leverage is real. We entered this year with a clear strategy. We executed against it, and the results demonstrate that. We are well positioned for fiscal 27 and beyond. Thank you. I will now hand back to Sukhinder.

Thank you, Claire. I'll now update you on the strategic progress we've made this year as we win the 3x3 and drive Xero forward faster into the agentic AI era. As I said, it's been a milestone year. We've made significant progress executing our strategy with focus and purpose with a number of key moves highlighted on slide 24. Beyond the Melio acquisition itself, I want to highlight a few other accomplishments. First, the launch of Zero Bill Pay, powered by Melio, on Zero.com in the U.S. this winter, to offer SMBs in the U.S. full management of cash flow in a single place. We're encouraged by the take-up, with thousands of customers already signed up, and TPV accelerating month over month since that launch. Secondly, key product launches across the 3x3, which included the Zero Analytics platform with AI-powered customizable insights, the embedded payroll solution in the U.S. through our partnership with Gusto, and the introduction of the Xero Simple offering in the U.K. for SMBs and accountants and bookkeepers to support the making tax digital for income tax rollout by the government in the U.K. Thirdly, from a GTM standpoint, we optimized our sales motions across both direct and partner channels to sell newer offerings like analytics and payments to customers and improve the Xero mobile experience to further uplift direct acquisition. Most importantly, we continue to roll out TAI features and new AI innovation throughout the year. From the general release of auto bank reconciliation to financial insights in JAX to the partnerships announced with both OpenAI and Anthropic to real-time powered AI chat in our support channel, 2026 was a year of high velocity delivery and learning. I'm going to speak more about what's next in AI shortly. And lastly, we continue to enable our people to move faster for customers. equipping them with AI education and automation tools, and continuing to simplify our operating model across our global operations. Of note, over 83% of zeros now use AI in their daily work. Before I talk about AI, there are two areas of our business I want to dive a little deeper on, the US business and our global payments opportunity. The US is a standout this year. On a zero organic basis, revenue growth has accelerated from 13% in FY24 to 25% in FY25 to 30% in FY26. This shows we are doing what we said we would do, executing with disciplined investment in our target areas. Combined with Melio on a pro forma basis, FY26 U.S. revenue reached $530 million NZ, up 50%, and pro forma gross profit reached $186 million, up 36% year-on-year. The gross profit dollar trajectory is what matters most. We are investing to build a business of real scale in the world's largest SMB market and improving unit economics as we grow. We are on track to achieve the Melio synergies and deliver run rate EBITDA break-even for the Melio business by the end of the second half of FY28. As we look into FY27, we've now made the decisions to step up our U.S. brand strategy and spend on the back of this momentum. This is a deliberate sequencing decision. We wanted to get the 3x3 jobs in good shape, including core accounting, payments, and embedded payroll, before committing to a higher multi-year spend investment. This is a long-term measurable investment to lift the performance of all channels by creating sustained brand awareness uplift, and we're excited to do it. Global payments is another important and strategic growth vector for Xero. It is our fastest-growing business and has begun to reach meaningful scale across multiple markets. Total payment volume across the group reached $62 billion, $28 billion from zero invoicing TPV, which is almost double from FY24 to 26, and $34 billion from zero bill pay TPV powered by Nelio. Total payment and invoicing revenue reached $535 million, up 53% on a pro forma basis year on year. Bill pay drove around 40% of the average revenue per customer uplift we saw this year. highlighting the structural advantage of payments. Embedded inside accounting, payments delivers materially higher revenue per customer than a standalone offering. This growth is driving significant average revenue per customer expansion for Xero and increasing our stickiness in value to customers meaningfully. As payment scales, our revenue model is also shifting faster towards a consumption-based model. ProForma's transactional revenue, including both zero invoicing and milio bill pay, has grown from 7% of group revenue in FY23 to 18% in FY26. This is a critical shift in the AI age, adding consumption-based revenue to our non-seat-based subscription model and provides more monetization levers to lift gross profit dollars and drive deeper integration into SMB operations. ProForma's payments revenue has grown at a 70% taker over the same period. reaching that $535 million I spoke about. The two revenue streams, a fixed and consumption-based pricing, are complementary and together generate a more durable, deeper, higher value relationship with our customers. This gives us more ways to grow and lets our revenue scale alongside our customers. All right, it's time to finish on our excitement for the agentic era. We are uniquely positioned to be a winner in an age of unprecedented change and opportunity. with multiple strengths to harness as we seek to multiply the value we deliver to customers using AI. While Xero may have begun as a system of record, we began our evolution to a system of decision-making and action years ago with traditional AI and recently with investments like SIFT analytics and global payments. But at Gentic, AI has taken the opportunity to drive outcomes for customers to an entirely new level. We see our own AI opportunity at Xero as being powered by accountable intelligence. Our commitment to customers is that our platform, leveraging AI, remains transparent, auditable, and trusted for every user. Underpinning our accountable intelligence is our position as the trusted operating system for the agenda era. By this, we mean the four layers of our offering that customers use. At the foundation, our infrastructure layer connects thousands of bank feeds, tax APIs, and compliance support across the 3x3 jobs. including regulated payment rails and the ecosystem we support of thousands of integrations. These are deterministic, complex, and interrelated connections that operate seamlessly with each other and with our applications and agents. On top of that is our data layer, enriched and verified financial data from multiple data sources, both first-party and third-party, and then proprietary data models on top, from processing 20 years of real-time small business transactions across multiple countries and jurisdictions. along with all the contacts this decision data generates. And it's important to note that our data layer and our infrastructure layer power not only our own applications, but again, those built by our app and ecosystem partners. Above that is the zero applications layer and the agent suite behind JAX. We are both vertical experts on certain SMB jobs, accounting, payroll, and payments, and horizontal in how we unify them into a single financial operating system for small businesses. We are model agnostic and able to take advantage of the latest models from LLM providers to tune each agent underneath JAX using our own AI harnesses. That is the data context and model most suited to the specific task. And at the top, the GTM layer with almost 5 million customers and growing, served through a 250,000 strong accounting and bookkeeper channel as well, and a multi-channel distribution engine to acquire efficiently at scale. Furthermore, that GTM layer is also evolving, and we see AI horizontal players as emerging new distribution channels we can integrate with and already do. Of note, we already rank very highly globally in AI citations. As you are aware, through our Anthropic partnership, we have now built a connector that allows customers to leverage Xero's financial intelligence directly inside Quad and also drive traffic to Xero for our full operating system access. Overall, our view of Xero's opportunity in the AI era is both powerful and exciting. Our confidence is also underpinned by what we see in our customer adoption of AI. 2.6 million Xero customers used at least one AI feature in the last 12 months to March 2026, including traditional AI. 513,000 customers used one of our newer generative AI features, up from 300,000, which is what we told you in February. Our automated bank reconciliation agent has now processed more than 40 million transaction lines, a clear delivery of customer productivity with an accuracy rate of more than 97%. That accuracy is earned. It reflects the depth and quality of Xero's transaction data and context and the harnesses we've created around generic LLM model capabilities. Jack's chat messages per customer grew 115% over the course of FY26. Customers are now using it more conversationally and using it for more complex tasks as they build trust in it. We've also launched recent newer features such as AI invoice email generation and new AI-powered document capture across web and mobile. The product velocity is accelerating. FY27 will be a year of deepening the value we create through AI further and beginning to monetize it. You can see on the slide we have ambitious plans for product delivery. And here is a look at some of our key agents that we can see driving further adoption. As an example, our data in agent further enhances our ability to get small businesses out of the paper economy and into the cloud by leveraging AI tools and deeper capabilities. We have brought types of documents we can process, meaning customers can also get a more complete picture of their business with minimal effort. Another example is further investment in our bookkeeping or auto reconciliation agent so that we can increase the number and complexity of transactions it can handle, as well as more deeply embedded in the workflows of our accounting and bookkeeping partners. As we've discussed before, our framework to monetize is threefold. First, simplicity. We bundle some AI features into existing plans so usage grows naturally without friction. This supports the second principle of adoption. We want to find the balance between bundling and allowing specific customers to choose specific AI capabilities a la carte. Lastly, we are focused on future-proofing. We are building usage-linked pricing models for some advanced AI features where consumption is a natural value metric and may also align more closely to higher compute costs. Like many others, we will learn and test and iterate as we go, and you will see us start rolling out monetization in FY27. Beyond our core AI roadmap, we are proactively building the next frontier of AI also. As tech builders ourselves, our goal is to experiment with what's possible, try new features and new business models proactively, and have bets that are not just certain, but also speculative within our capital investment in AI. I'm excited to share that first part of our cloud partnership is live today with the MCP integration of Xero into Cloud. If you're an existing customer, you can now connect Xero into Cloud and get intelligent answers securely. about your financial operations via their chat interface. We are already optimizing for AEO and also new LLM ad platforms. By testing new ways customers want to interact with LLM, it is an exciting new distribution bet for us. Lastly, I'm also excited to share one other new and early bet we are launching today at Xero, Xeroforce. What is Xeroforce? It's an easy agent builder that lets customers turn their own customer workflows on Xero into durable agents themselves that can run continuously and leverage Xero as the orchestration hub and core financial OS for their business. If you are not a full builder who wants to integrate with Xero's APIs to custom build a full app, XeroForce is a simpler way to innovate and build a custom smart agent on top of the Xero app and third-party apps you may use. This product, for example, is prompt-led and uses natural language. We are very early on building zero force, but the agentic era is all about fast empowerment and iteration, which is why we announced the closed alpha today as a sandbox for customers who are eager to learn with us and try innovating themselves on top of zero. AI is not just something we are building for our customers. It is reshaping how zero operates internally. Now, beyond the headline stats for all zeros, 97% of engineers are using at least one AI tool also. AI developer tools are saving around three and a half hours per individual per week and rapidly accelerating time to product launch. For example, we recently redesigned and rebuilt our timesheets experience, completing in 10 weeks what would previously have taken six months. One of the areas we've seen the most uplift is customer service. While Xero has always enjoyed high customer service efficiency, AI is truly transforming customer satisfaction at cost levels that previously wouldn't have been possible. In the last 30 days, we rolled out real-time AI-driven chat to 100% of our customers around the globe to give them instant support. It is delivering ahead of expectations with 60% of customer queries resolved instantly and over 60% CSAT. And this is a brand new support offering for our millions of customers. Another area to highlight is direct marketing. Our AI-powered content engine increased output around 80 times, scaling from roughly 60 SEO content pieces per quarter to to 50 pieces per day and limited US search visibility for minimal exposure to good to great. These are not incremental efficiency gains. These are structural and step change improvements and our marketing capabilities that are fueling our growth. In summary, FY26 has been a year of strong growth and strategic execution and sets us up for an exciting FY27. We are scaling payments globally, accelerating in the US, innovating through AI, and multiplying productivity for both customers and Xero. Our capital and operational discipline is funding our growth, delivering returns, and putting us firmly on the path to becoming a global winner in the small business landscape. Before I conclude, I want to thank our teams around the world for their hard work as we continue to do all we can to support our customers and partners. That concludes our presentation. I'll now pass over to the moderator for your questions.