​World domination on the cards as Xero follows All Blacks' lead

Rod Drury - CEO, Xero

Xero's plans for global domination are continuing at an unrelenting pace, as the New Zealand cloud firm follows the lead of the All Blacks by taking the technology industry by storm.

Much like the 2015 Rugby World Cup champions, the Wellington-based company is picking off opponents across all parts of the world, following strong customer growth at a global level.

As revealed to the market via the NZX, Xero has reported a rise in paying subscribers in its half-yearly earnings, reaching 593,000 by September 30, 2015.

Representing an increase of 222,000 from September 30, 2014, and subscription revenue of $89.8 million, according to Xero, there are now over 600,000 subscribers using the company's software.

"Xero delivered strong global growth while improving operating metrics, reflecting positive overall business performance,” says Rod Drury, CEO, Xero.

“Xero continues to grow its capability while delivering strong results.

“We have built a world-class team at all levels of the business who demonstrate disciplined execution to deliver on the global growth opportunity.”

Subscriber growth

Globally speaking, the company has continued its bold expansion plans by becoming the first small business cloud accounting solution to surpass 100,000 subscribers in the United Kingdom, alongside subscribers in over 180 countries worldwide.

In North America, Xero added 12,000 net new subscribers during the off-season to close at 47,000, a 300 percent improvement over subscribers added for H1 FY15.

Closer to home, Xero has also firmly established itself as a cloud accounting market leader on both sides of the Tasman, with 425,000 subscribers in Australia and New Zealand alone.

“The substantial investments in building our team and internal capability is seeing us deliver innovation at a rapid cadence for Xero’s customers,” Drury adds.

“Our global market position has attracted high-value partnerships with world-leading technology companies, financial institutions and banks, giving small businesses access to sophisticated cloud platforms and services once only available to big business.”

At present, Drury says Xero has expanded the solutions ecosystem with over 40 percent of Xero premium editions connecting to one of Xero’s 400+ solution partners while also establishing “significant strategic partnerships and integrations” with top technology companies shaping the future of cloud.

Alongside the delivery of hundreds of updates and more than 40 new features, including payroll in 15 U.S states, the company has forged 11 strategic partnership integrations, automated Australian Tax submission, and invoice reminders.

Financials

By continuing to execute on its global strategy, Xero reported annualised committed monthly revenue of $218.2 million, an increase of $85.9 million (65 percent) from $132.3 million at 30 September 2014.

Delving deeper, the company reported subscription revenues of $89.8 million, increasing $37.6 million (72 percent) from $52.2 million for H1 FY15.

Drury says year-on-year international growth currently stands at 110 percent operating revenue (76 percent in constant currency), with 79 percent subscribers in markets outside Australia and New Zealand and North American subscriber growth of 114 percent over H1FY15.

As the company continues to improve operating metrics while investing for growth, gross margin increased from 67 percent to 74 percent due to improved efficiencies and economies of scale.

In addition, operating and investing cash flows remained steady at $49.5 million compared to $48.5 million for H2FY15 with a closing cash position of $224.5 million.

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Meanwhile, contribution margin in the more developed Australia and New Zealand market increased from 22 percent in H1FY15 to 27 percent in H1FY16, while continuing investments to drive operating revenue growth reached 59 percent.

Top talent

Xero has also attracted top global talent to its board and executive teams across the world, while aligning for global execution.

As pointed out by Drury, this includes the completion of the CFO transition to Sankar Narayan as well as the alignment for growth by broadening the responsibilities of CMO, Andy Lark, to encompass global marketing, sales, partnerships and education.

As reported by Computerworld New Zealand, the company recently accelerated automation and big data innovation under Tony Stewart who was this week appointed to the newly established role of Chief Data Officer.

“Over the past year, cloud market adoption has accelerated and Xero has strengthened its market position, continuing to be one of the fastest growing SaaS companies in the world,” Drury adds.

“With more than half-a-million subscribers using Xero globally, Xero continues to set the industry pace for innovation, grow market share and broaden its total addressable market.”

Looking ahead

In the first half of this year Drury says Xero has continued to grow the team and its capability, with "disciplined investments" in product and distribution channels, while delivering another period of strong growth in new subscribers.

Operating metrics are expected to improve, adds Drury, as the company continues to drive efficiencies through automation and economies of scale in cost-to-serve, customer acquisition and product development.

“We’ve achieved strong growth for the first half and we’re on track to achieve $200 million subscription revenue based on June 2015 foreign exchange rates this financial year,” Drury adds.

“Xero is focused on containing its full financial year cash outflow to similar levels to the prior financial year.

“This growth as well as the rigour that we have established within the business positions Xero for long term value creation.

“While early SaaS companies have been focussed on medium-to-large enterprises, our connected ecosystem gives us access to the global small business market, positioning us to maintain strong growth rates for an extended period of time and drive further revenue monetisation opportunities.”