The Xero Limited (ASX: XRO) share price will be on watch on Thursday.
This follows the release of the company's full-year results this morning.
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Xero share price on watch following results release
Here's a summary of how Xero performed during the 12 months ended 31 March:
- Operating revenue up 28% to NZ$1.4 billion
- Annualised monthly recurring revenue up 26% to NZ$1.55 billion
- Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) up 45% to NZ$301.7 million
- Net loss of NZ$113.5 million
- Free cash flow of NZ$102.3 million
What happened during the 12 months?
In FY 2023, Xero reported a 28% increase in operating revenue to NZ$1.4 billion. This was driven by a 14% increase in subscribers to 3.74 million and a 10% lift in average revenue per user (ARPU) to NZ$34.61.
This growth was underpinned by strong performances in both the ANZ and international markets. In the ANZ segment, the company reported a 26% increase in revenue to NZ$798 million. This reflects a 7% increase in ARPU to NZ$34.24 and total subscribers growing to 2.13 million.
Whereas Xero's international segment saw revenue increase 30% to NZ$602 million. This reflects ARPU increasing 15% to NZ$35.10 and subscribers growing to 1.6 million. Highlights include UK subscribers rising 14% to 970,000 and North American subscribers increasing 13.3% to 384,000.
Another positive was that Xero's operating expense to operating revenue ratio for FY 2023 came in at 80.7% excluding restructuring costs. This is consistent with its guidance.
This ultimately led to Xero reporting a 45% increase in adjusted EBITDA to NZ$301.7 million, which drove a significant increase in free cash flow to NZ$102.3 million. The latter represents a free cash flow margin of 7.3%, compared to 0.2% in FY 2022.
Xero's adjusted EBITDA result excludes non-cash impairments and associated costs and restructuring charges. Including these one-offs, its EBITDA decreased 26% to NZ$158.4 million.
How does this compare to expectations?
This result appears to have been largely in-line with the market's expectations.
For example, according to a note out of Goldman Sachs, its analysts were expecting FY 2023 revenue growth of 29% to NZ$1,410 million, EBITDA of NZ$295 million, and an operating expenses to operating revenue ratio of 81.6%.
Xero delivered revenue of NZ$1.4 billion, EBITDA of NZ$301.7 million, and a ratio of 80.7%.
Management commentary
Xero's CEO, Sukhinder Singh Cassidy, was pleased with the company's performance. Singh Cassidy said:
We're pleased to deliver a strong operating result – supported by our program to improve operational efficiency and effectiveness. This gives us greater ability to deliver better value for all stakeholders and take advantage of the significant opportunity ahead." "We're positive about the multiple levers Xero has to deliver growth – including driving further adoption of cloud accounting and deepening customer engagement – as we strive to deliver the world's most insightful and trusted small business platform.
Outlook
No real guidance was provided for FY 2024. However, management appears confident it can reduce its costs ratio meaningfully. It said:
Along with reinvestment in strategic priorities, management is targeting an operating expense to operating revenue ratio in FY24 of around 75%. This will improve operating income margin compared to FY23.
Xero's long-term aspiration is to continue to improve its operating expense ratio and its operating income margin, although a specific timeline has not been set. These ratios, and their component parts, may vary from period to period as we identify opportunities for disciplined, customer-focused growth.
