Investor briefing
Half year results to 30 September 2019
7 November 2019
Third Drawer Down |AUSTRALIA
Important notice
This presentation is given on behalf of Xero Limited (Xero) (ASX:XRO) (Company number NZ 183 0488, AU ARBN 160 661 183).
Information in this presentation:
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is for general information purposes only, and is not an offer or invitation for subscription or purchase of, or a recommendation to invest in, Xero securities
should be read in conjunction with, and is subject to, Xero's latest and prior interim and annual reports, including Xero's interim report for the period ended 30 September 2019, and Xero's market releases on the ASX
includes forward-looking statements about Xero and the environment in which Xero operates, which are subject to uncertainties and contingencies outside of Xero's control - Xero's actual results or performance may differ materially from these statements
includes statements relating to past performance, which should not be regarded as a reliable indicator of future performance
may contain information from third parties believed to be reliable, but no representations or warranties are made as to the accuracy or completeness of such information
includes Non-GAAP measures as we believe they provide useful information for readers to assist in understanding Xero's financial performance. Non- GAAP financial measures do not have a standardised meaning and should not be viewed in isolation or considered as substitutes for measures reported in accordance with NZ IFRS. These measures have not been independently audited or reviewed
All information in this presentation is current at 30 September 2019, unless otherwise stated.
All currency amounts are in NZ dollars, unless otherwise stated.
Due to rounding, numbers in this presentation may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures.
See page 34 for a glossary of the key terms used in this presentation.
2
Agenda | Business | Financial | Outlook | Q&A |
update | results |
Steve Vamos | Kirsty Godfrey-Billy |
CHIEF EXECUTIVE OFFICER | CHIEF FINANCIAL OFFICER |
3
Business update
Steve Vamos
CHIEF EXECUTIVE OFFICER
Moovaz|SINGAPORE 4
2,057,000 | 478,000 |
added in 12 months | |
subscribers
Sep 07 | Sep 19 |
5
$ | 175m |
$764m | added in 12 months |
Annualised monthly recurring revenue
Sep 11 | Sep 19 | |||||
6 | ||||||
Sep 11 | ||||||
Global growth with strong
financialSUBSCRIBERS
indicators 2.06m
+ 478,000 YOY
ARPU
$30.96 | TOTAL |
LIFETIME VALUE | |
- 0.4% YOY (- 0.1% in | $5.4b |
constant currency1) | |
+ $1.4b YOY |
1See glossary for definition
AMRR
$764.1m
+ 30% YOY
OPERATING
REVENUE
$338.7m
- 32% YOY(33% in constant currency1)
FREE CASH FLOW
$4.8m
+ $14.6m YOY
EBITDA
EXCLUDING IMPAIRMENTS
$65.9m
+ $31.4m YOY
7
Executing on strategic priorities
Drive cloud | Grow small | Building |
accounting | business | for global |
platform | scale and | |
innovation |
8
Cloud accounting adoption1 | H1 FY20 subscriber additions by geo | |||||||
Drive cloud | ||||||||
accounting | AU | 114,000 | ||||||
ANZ | ||||||||
>50 | % | 130,000 | ||||||
NZ | 16,000 | |||||||
Australia and New Zealand
UK73,000
1Estimated adoption rates across English speaking addressable cloud accounting markets, based on publicly available data
<20%
Global
North | 20,000 | International |
America | 109,000 |
RoW16,000
0k | 30k | 60k | 90k | 120k |
9
Australia and New Zealand
Australia
- 28% subscriber growth YOY to 840,000 subscribers.Revenue growth of 26% YOY (29% constant currency)
- Single Touch Payroll legislation extended to all employers from July 2019, helping to encourage cloud accounting adoption through digitisation of payroll compliance
- Partnership with GreatSoft to help harness the power of cloud accounting for large accounting practices
New Zealand
- 13% subscriber growth YOY to 367,000 subscribers.Revenue growth of 22% YOY
- Positive ARPU trends driven by increasing emphasis on additional platform solutions including payments and Xero Payroll which benefited from introduction of Payday filing by Inland Revenue
Subscribers 1.2m
1,250k
1,000k
750k
500k
250k
0k | |||
H1 FY17 | H1 FY18 | H1 FY19 | H1 FY20 |
Revenue$211m
$240m | |||
$180m | |||
$120m | |||
$60m | |||
$0m | |||
H1 FY17 | H1 FY18 | H1 FY19 | H1 FY20 |
10
United Kingdom
51% subscriber growth YOY to 536,000 subscribers
HMRC's Making Tax Digital legislation continued to contribute to performance throughout H1 FY20
56% YOY AMRR growth (57% constant currency) driven by accelerated subscriber additions and ARPU trends. Revenue growth of 51% YOY
(52% constant currency)
New Manchester office to complement London and Milton Keynes locations
Invested heavily in readiness for Open Banking
Subscribers | 536k | |||
600k | ||||
400k | ||||
200k | ||||
0k | ||||
H1 FY17 | H1 FY18 | H1 FY19 | H1 FY20 | |
Revenue | $ | 80m | ||
$80m | ||||
$60m | ||||
$40m | ||||
$20m | ||||
$0m | ||||
H1 FY17 | H1 FY18 | H1 FY19 | H1 FY20 |
11
North America
21% subscriber growth YOY to 215,000 subscribers. Revenue growth of 34% YOY (29% constant currency)
Community partner strategy showing good progress with more than 40% YOY uplift in partner channel capacity
Novo became the first US-based digital bank (supporting small business and entrepreneurs), to integrate with Xero's global bank feeds API
Localisation of product with improved compliance functionality including GST returns in Canada and tax mapping in the US
Xerocon San Diego was attended by more than 1,000 people
Subscribers | |||
300k | 215k | ||
200k | |||
100k | |||
0k | |||
H1 FY17 | H1 FY18 | H1 FY19 | H1 FY20 |
Revenue | $ 27m | ||
$30m | |||
$20m | |||
$10m | |||
$0m | |||
H1 FY17 | H1 FY18 | H1 FY19 | H1 FY20 |
12
Rest of World
52% subscriber growth YOY to 99,000 subscribers. Revenue growth of 43% YOY (37% constant currency)
Asia
- Bank feed integration launched with Hang Seng Bank in Hong Kong, a leading SME bank
South Africa
- Great traction across Johannesburg and Cape Town roadshows
- Launched three new alternative lending integrations
Subscribers | 99k | ||
100k | |||
75k | |||
50k | |||
25k | |||
0k | |||
H1 FY17 | H1 FY18 | H1 FY19 | H1 FY20 |
Revenue | $ 19m | ||
$20m | |||
$13m | |||
$7m | |||
$0m | |||
H1 FY17 | H1 FY18 | H1 FY19 | H1 FY20 |
13
Our platform strategy
App Partners/ Ecosystem | Xero solutions | Xero products | |
800+ apps | Stripe | Bank feeds | Projects |
>50,000 users of Xero's API | (invoice payments) | Payroll | Hubdoc |
developer tools | Gusto (US Payroll) | Expenses | WorkflowMax |
Financial web services | Figured (Agri vertical) |
For small business
Small businesses can manage their day-to-day finances with software that's smart and easy-to use, having instant access to their data and files
y | ||||||||||||
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For accounting partners
Accounting partners can connect to their clients' data and work efficiently, bringing various work streams of their practice on to one platform in the cloud
App Partners/ Ecosystem | Xero Partner products | ||
Partner-specific tools and apps | Compliance | HQ apps and explorer | |
Workpapers | Practice Manager | ||
Tax solutions | Reporting | 14 | |
Driving growth through the platform
H1 FY20 revenue composition
Core accounting
Platform revenues1
WorkflowMax2
Non-recurring3
H1 FY20 | 116% | ||||||
revenue | |||||||
growth | |||||||
Group | YOY | ||||||
operating revenue | |||||||
$338.7m | |||||||
32% | |||||||
Group | 29% | ||||||
operating | |||||||
20% | |||||||
revenue | 19% | ||||||
89% | growth | ||||||
6% | Core | Platform | WorkflowMax | 2 | Non- | ||
2% 3% | accounting | revenues1 | recurring3 | ||||
- Platform revenues include revenue derived from related services, including adjacent products (such as Hubdoc),add-ons with incremental revenue (such as payroll and expenses modules), payments and revenue share agreements with partners
- Revenues relating to WorkflowMax, online workflow and job management software
3Non-recurring includes revenue from events (such as Xerocons and roadshows), and other non-subscription or platform services | 15 |
So what, now what?
Data is at the heart of Xero
Leveraging our machine learning and AI capabilities, we can support small businesses to use their data to drive simpler and more seamless workflows and surface powerful human insights
Workflows | Human Insights |
Data
Apps
Machine Learning | AI |
16
Progress on workflows and data integrations
Bringing Xero and Hubdoc closer together Marked improvement in the speed and accuracy of data ingestion and coding
Looking to bring Hubdoc's data capture and automation smarts closer to more Xero users
Stripe invoice payment integration Small businesses get paid more quickly when attaching an invoice payment option
Workflow integration enables more convenient Stripe account provisioning, sign-on and enhanced end customer features
17
Xero
Leadership
Team
Steve Vamos | Anna Curzon |
CHIEF EXECUTIVE OFFICER | CHIEF PRODUCT OFFICER |
Craig Hudson | Trent Innes |
MANAGING DIRECTOR, NEW | MANAGING DIRECTOR, |
ZEALAND AND PACIFIC ISLANDS | AUSTRALIA AND ASIA |
Mark Rees | Nicole Reid |
CHIEF TECHNOLOGY OFFICER | ACTING CHIEF PEOPLE OFFICER |
Damien Tampling | Gary Turner |
CHIEF STRATEGY AND CORPORATE | MANAGING DIRECTOR, |
DEVELOPMENT OFFICER | UNITED KINGDOM AND EMEA |
Kirsty Godfrey-Billy
CHIEF FINANCIAL OFFICER
Rachael Powell
CHIEF CUSTOMER OFFICER
Chaman Sidhu
CHIEF LEGAL OFFICER
AND COMPANY SECRETARY
Tony Ward
PRESIDENT OF AMERICAS
18
Social and environmental impact
Reduce Xero's impact on the environment by offsetting our carbon emissions to zero - Net Zero @ Xero
Support our employees and the for-purpose sector to make a difference in the community
Ambition to enable our customers to be more socially and environmentally conscious
With people at the heart of what we do - we will continue to embed diversity and inclusion initiatives with our employees, who will support the diverse needs of our customers
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19
Financial results
Kirsty Godfrey-Billy
CHIEF FINANCIAL OFFICER
X | KARVD Walls|UNITED STATES 20 |
Maintaining strong top-line momentum with improving free cash flow
Annualised monthly recurring revenue | Free cash flow | $4.8m | ||
$800m | +30%YOY | $5m | ||
$600m | $-5m |
$400m | $-15m |
$200m | $-25m |
$0m | H1 FY18 | H1 FY19 | H1 FY20 | $-35m | H1 FY18 | H1 FY19 | H1 FY20 |
21
Contribution margins positive in both segments
Australia and New Zealand contribution improved 34% YOY, exceeding revenue growth of 25% YOY due to continued operating discipline and scale benefits
International contribution positive for the first time as scaling and CAC efficiencies offset continued investment to drive strong subscriber additions
Australia and New Zealand | ||
contribution | 131m | |
$150m | $ |
$100m
$50m
$0m | H1 FY18 | H1 FY19 | H1 FY20 |
International segment contribution
$20m | $ 11m | |||
$10m | ||||
$0m | ||||
$-10m | ||||
$-20m | H1 FY18 | H1 FY19 | H1 FY20 |
22
Significant lifetime value uplift
September 2019 | Progress from |
September 2018 |
ARPU | $30.96 | 1 | |
Churn % | 1.10% | |||
Gross margin | 85% |
LTV per subscriber | $2,619 | 6%2 |
- ARPU decreased $0.13 from 30 September 2018
- LTV per subscriber growth in constant currency based on exchange rates at 30 September 2018. 5% increase in nominal terms
Total subscriber lifetime value (LTV)
>$1.4b
added in 12 months
$5.4b
$3.9b
Sep 18 | Sep 19 | 23 |
Unit economics and track record of value creation
Value of a Xero subscriber
$2,500 | LTV/CAC | Compelling SaaS | ||||||||
$2,000 | 6.9 | unit economics | ||||||||
$1,500 | ||||||||||
LTVCAC months 12.3 | ||||||||||
$1,000 | ||||||||||
$500 | $2,619 | MRR churn 1.10% | ||||||||
LTV/CAC 6.9 | ||||||||||
CAC | $0 | |||||||||
LTV $2,619 | ||||||||||
$382 | $-500 | |||||||||
Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Year 8 |
Total lifetime value
$6b | International | 5.4b | ||
ANZ | 3.9b | |||
$4b | ||||
2.8b | ||||
$2b | 1.1b | 1.7b | ||
$0b | H1 FY16 | H1 FY17 | H1 FY18 | H1 FY19 H1 FY20 |
Strong track record of value creation
>$1.4 billion LTV added in 12 months LTV almost doubled in last 2 years
H1 FY16 to H1 FY20 CAGR:
- ANZ: 47%
- International: 55%
24
Financial performance
Operating revenue growth of 32% YOY (33% constant currency) driven primarily by subscriber growth across all markets
EBITDA improved $48.1 million YOY, resulting in a 12.6pp increase in EBITDA margin over the period as the business continues to benefit from scale and efficiency improvements
EBITDA excluding impairments increased by 91% YOY while EBITDA margin, excluding impairments, increased by 6.0pp
First time interim net profit of $1.3 million and second consecutive net profit for a six month period following H2 FY19 net profit of $1.4 million
Total operating revenue
Gross profit
Gross margin
Sales & marketing costs
Product design & development
General & administration
EBITDA
EBITDA excl. impairments
EBITDA margin
EBITDA margin excl. impairments
Net profit/(loss) after tax
Net profit/(loss) after tax excl. impairments
H1 FY19 | H1 FY20 | YOY change |
($000s) | ($000s) | (%) |
256,527 | 338,658 | 32% |
212,277 | 288,517 | 36% |
82.8% | 85.2% | +2.4pp |
115,747 | 146,072 | 26% |
68,866 | 85,297 | 24% |
31,093 | 41,138 | 32% |
16,759 | 64,850 | 287% |
34,516 | 65,921 | 91% |
6.5% | 19.1% | +12.6pp |
13.5% | 19.5% | +6.0pp |
(28,565) | 1,336 | NM |
(10,808) | 2,407 | NM |
25
Further gross margin improvement
Gross margin improved by 2.4pp over the prior period to 85.2% for H1 FY20. Both the Australia and New Zealand and International segments saw positive gross margin trends
Gross margin improvement powered by
efficiencies in cloud hosting and other platform- related benefits driving further improvements to customer service quality at a lower cost
Gross margin
90%
85.2%
85%
80%
75% | ||
H1 FY18 | H1 FY19 | H1 FY20 |
26
Continued focus on CAC and product efficiency
Sales and marketing costs increased by 26% YOY which was lower than growth in revenue in H1 FY20. This resulted in a 2pp improvement YOY in CAC as percentage of revenue
Product costs including opex and capex as a percentage of revenue increased 1pp to 31% in H1 FY20
Product investment targeted a range of initiatives that will support near term product and customer objectives as well as longer-term strategic and technological needs
CAC as % of revenue
70%
55% | 43% |
40% | ||
H1 FY18 | H1 FY19 | H1 FY20 |
Product costs including opex and capex as % of
50%revenue1
31%
35%
20% | ||
H1 FY18 | H1 FY19 | H1 FY20 |
1Net of government grants | 27 |
Strong capital position with
Movement in net cash position
positive free cash
Positive free cash flow result in H1 FY20 of $4.8m, equivalent to 1.4% of operating revenues in the period
Operating cash flow increased 99% to $71.5m for H1 FY20, an improvement of $35.6m from $36.0m in H1 FY19
Net cash position at 30 September 2019 was $101.4m (comprising cash and short-term deposits less term debt) compared to $45.3m at 30 September 2018
Cash and cash equivalents
Short-term deposits
Total cash and short-term deposits
Term debt
Convertible notes - term debt liability
H1 FY19 | H1 FY20 | YOY |
($000s) | ($000s) | change |
($000s) | ||
21,187 | 110,898 | 89,711 |
55,000 | 385,130 | 330,130 |
76,187 | 496,028 | 419,841 |
(30,850) | - | 30,850 |
- | (394,631) | (394,631) |
Net cash | 45,337 | 101,397 | 56,060 | |
28
Outlook
X | Orenda Tribe|UNITED STATES 29 |
Outlook
Xero will continue to focus on growing its global small business platform and maintain a preference for reinvesting cash generated, subject to investment criteria and market conditions, to drive long-term shareholder value
Free cash flow1in the financial year to 31 March 2020 is expected to be a similar proportion of total operating revenue to that reported in the financial year to 31 March 2019
1Free cash flow is defined as cash flows from operating activities less cash flows used for investing activities excluding cash used for acquisitions of, and investments | 30 |
into, businesses and strategic assets |
Q&A
X | Nubian Skin|UNITED KINGDOM 31 |
Appendix
X | Farmit|NEW ZEALAND 32 |
SaaS metrics summary
ANZ | International | Group | |||||
H1 FY19 | H1 FY20 | H1 FY19 | H1 FY20 | H1 FY19 | H1 FY20 | ||
ARPU | $31.95 | $31.64 | $29.68 | $29.98 | $31.09 | $30.96 | |
CAC months | 8.4 | 8.6 | 18.2 | 16.0 | 12.9 | 12.3 | |
MRR churn | 0.87% | 0.82% | 1.55% | 1.58% | 1.10% | 1.10% | |
Subscribers | 981,000 | 1,207,000 | 598,000 | 850,000 | 1,579,000 | 2,057,000 | |
LTV per sub | $3,064 | $3,362 | $1,558 | $1,563 | $2,494 | $2,619 | |
LTV/CAC | 11.5 | 12.3 | 2.9 | 3.3 | 6.2 | 6.9 | |
Total LTV | $3.01b | $4.06b | $0.93b | $1.33b | $3.94b | $5.39b | |
33
Glossary
Subscribers
Subscriber means each unique subscription to a Xero-offered product that is purchased by an accounting partner or an end user and which is, or is available to be, deployed. Subscribers that have multiple subscriptions to integrated products on the Xero platform are counted as a single subscriber
AMRR
Annualised monthly recurring revenue (AMRR) represents monthly recurring revenue at 30 September, multiplied by 12. It provides a 12 month forward view of revenue, assuming any promotions have ended and other factors such as subscriber numbers, transaction volumes, pricing and foreign exchange remain unchanged during the year
ARPU
Average revenue per user (ARPU) is calculated as AMRR at 30 September divided by subscribers at that time (and divided by 12 to get a monthly view)
Churn
Churn is the value of monthly recurring revenue (MRR) from subscribers who leave Xero in a month as a percentage of the total MRR at the start of that month. The percentage provided is the average of the monthly churn for the previous 12 months
Constant currency
Constant currency comparisons for revenue are based on average exchange rates for the 6 months ended 30 September 2018. Comparisons for ARPU, AMRR and LTV are based on exchange rates at 30 September 2018
Lifetime value (LTV)
LTV is the gross margin expected from a subscriber over the lifetime of that subscriber. This is calculated by taking the average subscriber lifetime (1 divided by churn) multiplied by ARPU, multiplied by the gross margin percentage. Group LTV is calculated as the sum of the individual segment LTVs, multiplied by their respective segment subscribers, divided by total Group subscribers
CAC months
Customer Acquisition Cost (CAC) months are months of ARPU to recover the cost of acquiring each new subscriber. The calculation is sales and marketing costs for the year excluding the deferral and amortisation of commissions paid to sales people, less conference revenue (such as Xerocon), divided by gross new subscribers added during the same period, divided by ARPU
Free cash flow
Free cash flow is defined as cash flows from operating activities less cash flows used for investing activities excluding cash used for acquisitions of, and investments into, businesses and strategic assets
Finweb | GAAP | SBP |
Financial web | Generally accepted | Share-based payments |
accounting principles | ||
TAM | ||
Total addressable market |
34
Beautiful business
xero.com/investors
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Xero Limited published this content on 07 November 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 06 November 2019 22:04:07 UTC