Yahoo Finance

• Revenue Growth: 25% increase to $996 million, 23% in constant currency year-over-year.

• Adjusted EBITDA: $312 million, up 52% or $107 million from last year.

• Rule of 40 Outcome: 43.9%, up by 10.3 points year-over-year.

• Subscriber Growth: 10% year-over-year, with 401,000 net additions.

• ARPU Expansion: 11% increase.

• Australia Revenue Growth: 27% increase, with 103,000 net subscriber additions.

• New Zealand Revenue Growth: 13% increase, with 9,000 net subscriber additions.

• U.K. Revenue Growth: 26% increase, 22% in constant currency, with 49,500 net subscriber additions.

• North America Revenue Growth: 25% increase, with 12,000 net subscriber additions.

• Rest of World Revenue Growth: 23% increase, 22% in constant currency, with 13,500 net subscriber additions.

• Free Cash Flow Margin: 21%, up 7.7 percentage points.

• Cash Balance: Increased by $692 million, totaling around $2 billion.

• Warning! GuruFocus has detected 4 Warning Sign with XROLF.

Release Date: November 13, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Xero Ltd (XROLF) reported a strong revenue growth of 25% year-over-year, reaching $996 million.

• The company achieved an adjusted EBITDA of $312 million, marking a 52% increase from the previous year.

• Xero Ltd (XROLF) delivered a Rule of 40 outcome of 43.9%, up by 10.3 points year-over-year, indicating a balance of growth and profitability.

• Subscriber growth was robust, with a 10% increase year-over-year, and ARPU expanded by 11%.

• The company successfully completed the removal of 160,000 long idle subscriptions, which positively impacted ARPU.

Negative Points

• Subscriber growth in Canada was limited due to a subdued market backdrop and lack of cloud adoption momentum.

• The company faced challenges in driving payroll adoption in the U.K. and New Zealand, requiring further effort to improve product market fit.

• There was a slight increase in churn to 1%, reflecting a slight uptick from post-COVID lows.

• The increase in share-based payments to 9% of sales reflects higher costs associated with hiring domain experts, particularly in the U.S.

• The timing of hiring key domain experts was slower than expected, impacting the planned reinvestment in product development.

Q & A Highlights

Q: Could you discuss the guidance for the year, particularly regarding operating expenses and sales and marketing investments? A: Kirsty Godfrey-Billy, CFO: We maintained our guidance for operating expenses to be around 73% of revenue. This includes investments in both customer acquisition costs (CAC) and product development. We expect product and technology expenses to be similar to last year, around 30.7%, down from 28.7% in the first half. This reflects potential changes in capitalization rates and the timing of hiring domain experts. Sukhinder Singh Cassidy, CEO: In sales and marketing, we are focusing on optimizing performance marketing channels and improving attribution and measurement to enhance our marketing effectiveness.