Xero reports 28% growth

Accounting solutions provider Xero reported that its full year earnings to March 31, 2023, saying that the company delivered revenue growth of 28% (25% in constant currency (CC)), contributing to an increase in adjusted EBITDA of 45% compared to FY22 to $301.7 million. This drove a significant increase in free cash flow to $102.3 million, which reflects a free cash flow margin of 7.3% compared to 0.2% in FY22.

The company further elaborated that operating revenue increased to $1.4 billion, which reflects ongoing subscriber growth and average revenue per user (ARPU) improvement. Annualized monthly recurring revenue (AMRR) grew by 26% to $1.55 billion (23% in CC). Total LTV, which grew 23% (21% in CC) to $13.4 billion, was driven by double digit subscriber growth across all regions – as average monthly churn (0.90%) remained low and ARPU improved a further 10% (8% in CC). This underscores the trust customers place in Xero to help them manage their businesses.

Xero’s operating expense to operating revenue ratio for FY23 was 80.7% (excluding restructuring costs of $34.7 million), consistent with guidance provided.

The company noted that product design and development expenses increased by 32% to $490.0 million, up slightly as a proportion of operating revenue to 35.0%. This spending has delivered a number of product updates and new features for customers. This included practice tools updates to provide a single source of truth for client data across Xero Practice Manager, Xero HQ and Xero Tax; launching Xero Go in the UK to meet the less complex needs of self-employed businesses and their advisors; a partnership in the US with cloud-based tax compliance automation provider Avalara, to build an integration that automates sales tax compliance from within Xero; updates to Xero Payroll in Australia to help customers manage compliance for the Single Touch Payroll (STP) Phase 2 transition; and South African Rand (ZAR) billing to help customers and partners to consistently plan for subscription costs in their local currency.

“Xero’s strong underlying operating result is underpinned by continued revenue momentum from both subscriber and ARPU growth. Our FY23 performance demonstrates Xero’s resilience to the macroeconomic conditions of the past year, and the value we provided to small business customers in a challenging environment. We remain well positioned to take advantage of the significant long-term opportunity for cloud accounting and our small business platform as we prioritize disciplined, customer-focused growth,” said Xero CEO Sukhinder Singh Cassidy.

In North America, Xero added 30,000 subscribers in H2 FY23, in line with H2 FY22 and with guidance. In FY23, Xero added 45,000 net subscriber additions in North America to reach a total of 384,000 subscribers.