Xero Limited (XRO) / Announcements

Historical

Xero gaining offshore momentum

8:30am, 18 Nov 2011 | HALFYR

Performance highlights for the six months to 30 September 2011

2011 2010 Increase
Operating revenue $7.9m $3.7m 112%
Committed monthly revenue $1.5m $0.75m 100%
Paying business customers 51,300 25,500 101%

Momentum

Xero’s financial performance for the six months to 30 September 2011 cemented the company’s position as the emerging global leader in the online accounting market.

The doubling of revenue to nearly $8 million for the period and committed monthly subscription revenue of $1.5 million as at 30 September 2011, validated Xero’s ability to deliver a scalable SaaS (software as a service) business.

Rapid customer acquisition drove the result, with customer numbers doubling to over 50,000. Xero is achieving momentum globally, proving that both the product and the sales model can be leveraged into the large overseas markets being targeted.

An experienced management team now leads a 140+ strong team across four countries.

True export story

More than 40 percent of Xero’s revenue comes from offshore and the company expects this growth to continue as the brand becomes established in large overseas markets. Recently Xero was named New Zealand’s fastest growing exporter in the 2011 Deloitte Fast 50 Index.

As demonstrated in the table below, all regions experienced strong growth for the period. In Australia leading online payroll provider Paycycle was acquired for a total consideration of NZ$1.9 million and a second office established in Canberra. The company plans to open more offices - one in Sydney and another in the UK.

An office in San Francisco was established and key staff have relocated. The company is building strategic partnerships and is well connected with the influencers in the US accounting community.

A thriving ecosystem of add-on services that integrate with Xero contributed to growth and global brand awareness for the period, as did new exposure through Google Apps Marketplace and Chrome Web Store.

In August the release of Xero Touch (new mobile app for iOS devices) via Apple’s App Store, created another significant global sales avenue and completed another deliverable in the company’s US entry strategy.

Financial results summary

6 months to 30 September 2011 6 months to 30 September 2010 Year on year change

Revenue by Segment:
New Zealand $4.6m $2.5m 84%
Australia $1.8m $0.5m 260%
United Kingdom $1.1m $0.5m 120%
Rest of World $0.4m $0.2m 100%
Group Operating Revenue $7.9m $3.7m 112%
Operating expenses $(11.1m) $(8.0m) 39%
Net Loss $(3.7m) $(4.7m) 21%
Cash at bank $11.4m $16.6m

Xero is a maturing company with lower investment risk, as demonstrated by an annualised subscription revenue run rate of over $18 million as at 30 September. This result was generated from over 50,000 paying customers in over 100 countries, who together processed in excess of $50 billion of transactions, making Xero a serious Financial Technology (FinTech) provider on the global landscape.

Xero’s combined strategy of a low cost web 2.0 model and a targeted accountant channel is working well.

The company continues to invest in product innovation to enhance its leadership position. In August the Ministry of Science and Innovation recognised Xero for its commitment to investment in Research and Development by providing a Technology and Development Grant of up to $4 million over the next 3 years.

Xero’s unique advantage remains the ability to offer client side accounting, the tools for accountants to service clients, as well as an integrated solution to run accountancy practices in the cloud without expensive hardware.

Large competitors Intuit, Sage and MYOB are still grappling with how to provide a reliable, fully functioned, global online product. Shifting their legacy business models to SaaS is proving hard to do. Meanwhile, smaller competitors lack the scale and investment backing to develop a comprehensive solution like Xero.

The economic environment continues to create opportunities for the Xero – its cost effective offering helping to boost the productivity of small business.

Board changes

Chairman Phil Norman has advised the board of his intention to resign as a Director before the next annual meeting. Phil has served as Chairman for 5 years, which he considers an appropriate time for a foundation Chairman of a fast growing company. Phil has led the business through the start up entrepreneurial phases, the successful IPO and subsequent capital raisings to create a strong platform for future growth.

Current Director Sam Knowles assumes the role of Board Chairman from today. Sam’s experience is ideal to take the company through the next stage of growth as it expands it’s team globally.

Xero co-founder Hamish Edwards will leave the board at the end of the year. Hamish remains involved with the business as an executive.

The board recognises the outstanding work of Phil and Hamish.

Positioning for future growth

The company has leased 2,000 m2 of the John Chambers building near the Wellington waterfront to create a Global HQ. This will consolidate the Wellington based team - now spread across two offices - and create a workplace environment that continues to attract top talent.

As stated at the company’s Annual Meeting in July, the Board is pursuing a growth agenda that provides the flexibility to pursue opportunities that create shareholder value, rather than short-term profitability. The company is comfortable with its ability to fund continued growth and execute with excellence. To support this growth, Xero is now ramping up investment in its internal infrastructure, systems and global sales teams to support a million customers as it gains traction in large overseas markets.

For more information contact:

Rod Drury
Xero CEO
rod.drury@xero.com
+64 27 6000 007

Ross Jenkins
Xero CFO
ross.jenkins@xero.com
+64 21 963 909