Xero loss widens to $28.6m
CEO insists company is tracking well
There is more red ink at Xero, but all other metrics are heading in the right direction. The cloud accounting company has reported a first-half net loss of $28.6 million, compared to its first half 2018 net loss of $19.6m.
Speaking to the Herald soon after the result was released, chief executive Steve Vamos pinned the wider loss on a $16.2m impairment incurred when Xero decided to abandon its inhouse payroll software development effort for US market in a favour of an alliance with Gusto.
Ebidta was $16.8m, a slight increase on the $15.6m reported for the year-ago period.
Revenue grew 37 per cent to $256.5m, a faster pace than the first half of 2018 when it grew 33 per cent in constant currency terms (although now listed in Australia, Xero is still registered in New Zealand and reports its results in NZ dollars).
Annualised monthly recurring revenue (or the latest month x12) increased 40 per cent (against a 36 per cent gain in the same period last year) for an annual run rate of $589.1m.
Cash-burn on operations (the rate at which a company is spending its capital to finance its overheads) dropped in both absolute and proportional terms in the six months to September 30, allowing the company to double its pre-impairments operating earnings surplus for the half-year from $17.1m to $34.5m.
Operating cashflow increased from the year-ago $20.9m to $36m.
There were net subscriber additions during the half of 193,000, taking Xero’s total subscriber base to 1.58 million as of September 30, excluding 174,000 from the Hubdoc acquisition.
There were promising signs in the US and Canada where Xero has struggled to gain traction against the incumbent Intuit. North American subscriber numbers jumped 45 per cent to 198,000. Average revenue per user increased 6 per cent (vs 3 per cent growth last year) to $31.10.
Vamos did not put a timeline on the company’s push for a maiden profit, but re-iterated it could reach cashflow breakeven without the need to raise more capital, bar for M&A activity, for which Xero recently raised US$300m via a convertible note offering.
Xero’s August purchase of Canadian company Hubdoc for US$70m should give investors a good line on the sort of businesses his company was after, Vamos said. Xero is interested in anything that can be scaled and boost its small business platform, the CEO said.
Vamos quit Telstra’s board on October 16, saying he gave up his seat because “Xero is my priority,” and because he had already served three terms. He planned to keep his Fletcher Building directorship.
Rod Drury has largely disappeared from the radar since he quit as Xero chief executive in April 1. Vamos said he still talks regularly to the company’s founder, who remains a director.
The pair were in San Francisco together for a board meeting last week and made a joint appearance at Xerocon in Brisbane during September. Xero’s Australian subscriber base grew 27 per cent to 657,000 in the first half, with revenue increasing 33 per cent. New Zealand saw 20 per cent subscriber growth to 324,000 and revenue growth of 22 per cent.