Xero's operating earnings turn positive as subscriber base continues to grow

Xero co-founder Rod Drury. (Photo by Hagen Hopkins/Getty Images)
  • Xero reported a 33.9% rise in subscribers to its accounting software platform.
  • Operating earnings turned positive for the first time.
  • The company booked an accounting loss of $NZ27.9 million — a 60% improvement from the previous year.

Accounting software company Xero announced a 38% rise in operating revenue to $NZ407 million ($378 million) in its annual results this morning.

The company said earnings before interest, tax, depreciation and amortisation (EBITDA) rose to $NZ26 million for the financial year ended March 31.

It’s the first time the company has reported positive EBITDA, and marks a turnaround from a $NZ28.6 million loss in the 2017 financial year.

The earnings momentum was driven by a 33.9% rise in its subscriber base to 1.386 million subscriptions — up from 1.035 million the year before.

Xero CEO Steve Vamos told Business Insider the company is optimistic about further subscription growth in the year ahead.

“When you look at the adoption of cloud accounting it’s still at an early stage”, Vamos said.

“The business is still positioned for high growth and we’ve made our intentions clear on the investment side to continue fostering that growth.”

While operating earnings turned positive, the company reported a net accounting loss of $NZ27.9 million — a 60% improvement from the previous year’s loss of $NZ69.1 million.

Cash flows from operating activities also moved into positive territory, rising to $US41.2 million. Operating cashflow in the previous year was negative $NZ4.4 million.

Total cash outflow across operating activities was ($NZ36.9 million), down from an outflow of ($NZ70.1 million) in FY17.

“Xero is managing the business to cash flow break-even within its current cash balance (without drawing on its debt facility) through operational efficiencies,” the company said.

“Following cash flow break-even, it is intended that surplus cash flow will be reinvested, subject to investment criteria, to drive long-term shareholder value.”

With an established customer base in Australia and New Zealand, the company is aiming to expand globally with a focus on the UK and the US.

“The Xero team is focussed on delivering a scalable, world-class product and customer service experience as we expand further into new and existing markets,” Vamos said.

Xero’s income segments by geography:

On February 5, Xero consolidated it’s dual-share listing in Australian and New Zealand onto the ASX, to gain access to deeper capital markets.

The company said that from February 5 to March 29, daily liquidity increased by 200% and there’s been an increase in international index-based investment.

Xero chief financial officer Sankar Narayan said the company had achieved a number of key financial milestones in the 2018 financial year.

These include S&P/ASX 100 index inclusion, our first annual positive EBITDA, first positive operating cash flows for the full-year, and establishing access to debt capital,” Narayan said.

As an indicative guide for the year ahead, the company said its annualised monthly recurring revenue (AMRR) grew by 33% to $NZ484.4 million.

The AMRR is derived from sales in the most recent month (March 2018), extrapolated out across the next 12 months.

No dividends were paid in the period and Xero said it had no plans to pay a dividend in the near-term.

“These results have taken more than a decade of strategy execution and responsible investment of shareholder funds,” Vamos said.

“We are well poised to leverage Xero’s international market leading positions as we continue to build a diversified growth profile.”

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