Xero, the cloud-based small business platform, announced its strong and profitable full year financial results ending March 31, 2024. The results highlight Xeroʼs ability to execute towards its future aspirations and drive continued strong revenue growth and profitability.
Xeroʼs strong operating results included operating revenue growth of 22% (21% in constant currency (CC)), and an operating expense to revenue ratio of 73.3% (in line with guidance). This supported a 75% increase in adjusted EBITDA compared to FY23, to $526.5 million, with EBITDA of $497.4 million (mainly impacted by the non-cash impairment of Xero Go of $28.9 million). This resulted in free cash flow increasing to $342.1 million and a free cash flow margin of 20.0%, improving from 7.3% in the prior period. As a result Xero delivered a Rule of 40 outcome of 41.0%, demonstrating our ability to1drive both growth and profitability.
CEO Sukhinder Singh Cassidy said: “This result shows we're doing what we said weʼd do. Weʼve delivered a strong and profitable FY24 result and Rule of 40 outcome, demonstrating our commitment to balancing growth and profitability. We have a clear and focused strategy to win on purpose, and Xero is positioned well as we move into FY25.”
“Weʼre executing on our strategic priorities by purposefully allocating capital aligned to our market opportunities, and building great products for customers as we sharpen our focus on Xeroʼs multiple growth levers. As we aspire to be a world-class SaaS business, we seek to capture our large global TAM opportunity and become an even more trusted platform for small businesses and their advisors.”
Operating revenue increased to $1.7 billion, driven by APRU expansion and subscriber growth. Annualized monthly recurring revenue (AMRR) grew by 26% to $1.96 billion (22% in CC). Total LTV grew 16% (12% in CC) to $15.5 billion. Average monthly churn (0.99%) remained below pre-pandemic levels, and ARPU improved a further 14% (10% in CC), underscoring Xeroʼs macro resilience and the value customers place in Xero to help them manage changing environments.
In FY24, Xeroʼs product and feature delivery continued as Xero maintains its focus on investing in building great products for customers. FY24 product highlights included launching auto sales tax powered by Avalara in the US; expanding its North American bank feed network from 20 direct bank feeds in FY23 to more than 600 direct bank feeds in FY24, which includes bank feeds through aggregation partners such as Yodlee and Flinks; and launching the single client record to provide one source of truth for client records to practices.
Xero had several other highlights in payments including launching two new UK products — Bill Pay using open banking and eInvoicing — and globally improving features in Stripe that more seamlessly support businesses to onboard and collect payments. Xero also announced a strategic partnership with BILL to build a US bill payment solution. In April 2024, Xero announced a strategic partnership with Deputy to bring workforce management together with Xero's payroll and accounting for Australian customers. Xero invested US$25 million to take a minority position in Deputy to further increase the two businessesʼ focus and alignment.
Market highlights
Australia and New Zealand
Australia and New Zealand continued to deliver strong results in higher cloud-penetrated markets with continued double digit revenue growth, up 22% (22% in CC) to $969.9 million. ARPU increased 11% to $37.97 and total subscribers grew to 2.4 million. In Australia, Xero delivered 205,000 net subscriber additions to reach 1.8 million subscribers. In New Zealand, 38,000 net subscribers were added to reach 605,000 subscribers.
International
Growth momentum continued in Xeroʼs international markets, with revenue increasing 24% (20% in CC) to $743.9 million, ARPU rising 17% (11% CC) to $41.05, and subscribers growing to 1.8 million.
In the UK, Xero delivered pleasing growth, adding 107,000 net subscribers, taking total subscribers to 1.1 million. Xero added 38,000 net subscribers in North America to reach 422,000 subscribers. Rest of World subscribers increased to 285,000 with 31,000 net subscriber additions.
The UK saw continued strong revenue and a solid subscriber growth outcome in a period where there were no Making Tax Digital tailwinds. Underlying momentum in North America was strong with the US delivering a good balance of subscriber growth and APRU expansion, while strong revenue growth continued in Xeroʼs Rest of World markets.
Aspiration3
Xero aspires to be a world-class SaaS business. Xero believes it has the opportunity to both double the size of its business and deliver Rule of 40 or greater performance , over time. As Xero grows, it will also seek to4 5 6 be more balanced between subscriber growth and ARPU expansion.
Outlook
Total operating expenses as a percentage of revenue is expected to be around 73% in FY25, and compared to FY24, product design and development costs as a percentage of revenue is expected to be higher.
Xeroʼs earnings webcast and replay
Xeroʼs FY24 earnings webcast at 10:30am AEST on 23 May 2024 can be accessed at: https://webcast.openbriefing.com/xro-fyr-2024/ and pre-registration for the event is encouraged at this same link.
A replay of the webcast will be available on Xeroʼs Investor Center: www.xero.com/about/investors.
Footnotes and disclosures:
All figure expressed herein are in NZD.
1 Rule of 40 is defined as the sum of annual revenue growth percentage in constant currency and annual free cash flow margin percentage (free cash flow as a percentage of revenue)
2 Operating income is a non-GAAP financial measure. Xero defines it as gross profit (total operating revenue, less cost of revenues), less total operating expenses
3 Xeroʼs aspirational revenue and Rule of 40 performance opportunity statement is not guidance nor a prediction of future performance. No timeframe has been set. It is provided as an indication of outcomes management is currently focused on as part of its strategic ambitions. There are risks and uncertainties in connection with this aspiration, including from events beyond Xeroʼs control
4 Xeroʼs FY23 revenue was $1,400 million, and H1 FY24 revenue (annualized on a straight line basis) is $1,599 million
5 Rule of 40 is defined as the sum of annual revenue growth percentage in constant currency and annual free cash flow margin percentage (free cash flow as a percentage of revenue)
6 Rule of 40 outcomes, and the component parts may vary from period to period as we identify opportunities for disciplined customer-focused growth and experience changes in our cash tax payment profile. Xero is likely to exhaust its accumulated NZ tax losses during the FY25-27 strategic period. Xeroʼs remaining NZ losses balance was ~$193 million at 31 March 2024
Information contained herein was authorized for release to the ASX by the Chair of the Board and Chair of the Audit and Risk Management Committee.
This feature has been adapted from an official Xero Press Release by Insightful Accountant. Information adapted by Insightful Accountant for publication is provided for informational and educational purposes only. Insightful Accountant assumes no responsibility for the accuracy of the provided financial information.
Xero Limited (ASX: XRO), a global small business platform with 4.2 million subscribers is based in Wellington, New Zealand. Xeroʼs smart tools help small businesses and their advisors to manage core accounting functions like tax and bank reconciliation, and complete other important small business tasks like payroll and payments. Xeroʼs extensive ecosystem of connected apps and connections to banks and other financial institutions provide a range of solutions from within Xeroʼs open platform to help small businesses run their business and manage their finances more efficiently.
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