Xero Limited · ASX:XRO
Xero — Investor Day (February 2024)
126 slides from Xero's investor day presentation, Feb 29, 2024
Slide 1: Investor Day 2024
XSlO | Investor Day 2024
Slide 2: Important notice (page 1 of 2)
Important notice (page 1 of 2) This presentation is given on behalf of Xero Limited (Xero) (ASX:XRO) (Company number NZ 183 0488, ARBN 160 661 183). Information in this presentation is for general information purposes only, and is not an offer or invitation for subscription, or purchase of, or a reco
Slide 3: Important notice cont. (page 2 of 2)
Important notice cont. (page 2 of 2) Information in this presentation Information in this presentation, including forecast financial information, should not be considered as investment, financial, legal, tax or other advice. You should make your own assessment and seek appropriate independent profes
Slide 4: Agenda
Agenda 29 February 2024 10:00am – 10:15am Introduction and Acknowledgement of Country Nicole Mehalski EGM IR, David Thodey AO Chair 10:15am – 11:00am Xero vision and FY25-FY27 strategy Sukhinder Singh Cassidy CEO 11:00am – 12:00pm Product and technology Diya Jolly CPO 12:00pm – 1:00pm Product breako
Slide 5: Xero vision and FY25–FY27 strategy
Investor Day Xero vision and FY25–FY27 strategy Sukhinder Singh Cassidy Chief Executive Officer February 2024 5
Slide 6: Objectives of Xero Investor Day
Objectives of Xero Investor Day 1 2 3 4 5 A view on Sharing Insight into An opportunity Hearing from where where we are key areas of our to meet you as long-term weʼve been headed business our leaders partners Nury Saenz, bookkeeper 6
Slide 7: Our history to date
Our history to date 7
Slide 8: This is Xero: A history of innovation…
This is Xero: A history of innovation… Established cloud accounting Expanded - new geographies Extended - more jobs to be done 2018 Partnered with Gusto for 2016 US payroll Launched app Added TAS, marketplace e-invoicing, CA Tax & acquired 2012 inventory mgmt 2006 capabilities Invoice Xero pioneered
Slide 9: …and delivering strong revenue growth and shareholder returns…
…and delivering strong revenue growth and shareholder returns… Revenue (NZD) Share price performance 10yr revenue XRO S&P ASX 200 CAGR: 43% +269% +42% 3 5 7 9 1 3 cʼ1 cʼ1 cʼ1 cʼ1 cʼ2 cʼ2 De De De De De De Matthew Li, Nova CPA 9
Slide 10: …while building a strong purpose-driven brand that our customers love
…while building a strong purpose-driven brand that our customers love Customer NPS 2021 2022 2023 51 5yr average1 FT High-Growth Companies Asia-Pacific (2020 – 2021) Carbon neutral certification (2021 – 2022) Bloomberg Gender-Equality Index (2021 – 2023) Dow Jones Sustainability Indices AFR Best Pla
Slide 11: Growth has been driven by strong execution, accelerated by external tailwinds
Growth has been driven by strong execution, accelerated by external tailwinds Net new revenue (NZD) First full-cloud UK Making Tax UK MTD3 and solution in AU with Digital (MTD)2 AU STP Phase 2 AU accounting and COVID-19 payroll Single Touch Payroll (STP) in AU1 UK North America FY13 FY14 FY15 FY16 F
Slide 12: TAM and GTM have grown through market and job expansion
TAM and GTM have grown through market and job expansion Markets ROW Small / Other SG ZA Medium CA NZ US Large UK AU Time, Annual Reporting & Invoice Bills Data In Bookkeeping Tax Insights & Payments & Payments Payroll Attendance Expenses Projects Inventory Job areas & Scheduling Where Xero Product A
Slide 13: Look back on the last 12 months
Look back on the last 12 months 13
Slide 14: Over the last 12 months, we have strengthened our foundations
Over the last 12 months, we have strengthened our foundations for Xeroʼs next chapter Our recent commitments Targeting more balanced, More focused Starting on journey to using multiple profitable growth allocation of capital growth levers Our achievements ● 15% headcount restructure ● Reshaped org b
Slide 15: Xero's leadership team brings deep and wide global expertise
Xeroʼs leadership team brings deep and wide global expertise Xero Leadership Team Sukhinder Singh Cassidy Kirsty Godfrey-Billy Diya Jolly Angad Soin Chief Executive Officer Chief Financial Officer Chief Product Officer Chief Business Operations Ex StubHub, Google, Yodlee Ex PwC Ex Okta, Google & Strate
Slide 16: As does our senior leadership team
As does our senior leadership team Some of our SLT highlighted below Chris Patalano Akankshu Dhawan Che Douglas Eitan Sharon Alex von Schirmeister Sylvia Ding EVP Product Engineering SVP Direct & Growth EGM Design SVP Data & Science Managing Director, EGM Product - Ex Realtor.com, Pandora Ex Uber, M
Slide 17: Winning on purpose
Xero FY25–27 strategy Winning on purpose Winning Living our Purposefully solutions for purpose allocating our customers consistently capital 17
Slide 18: Our purpose and vision
Our purpose and vision Our purpose To make life better for people in small business, their advisors and communities around the world Our vision To be the most insightful and trusted small business platform Neredah Blake, Blakeaway 18
Slide 19: Our aspiration
Our aspiration1 We aspire to be a world class SaaS business We believe we have the opportunity to both double the size of our business2 and deliver Rule of 40 or greater performance As we grow, we will also seek to be more balanced between subscriber growth and ARPU expansion 1. Xeroʼs aspirational
Slide 20: Where to play, How to win
To deliver this aspiration, we have made choices on where to play and how to win Where to play How to win The key tactics that Our target customers, drive success in the markets and products next three years 20
Slide 21: Where to play
Where to play Our target customers, markets and products 21
Slide 22: We have two primary and secondary SMB segments
We have two primary and secondary SMB segments PRIMARY SEGMENTS SECONDARY SECONDARY Simple Complex Micro Small Medium Large self-employed self-employed (1–5 employees) (6–20 employees) (21–100 employees) (101+ employees) (<$75k turnover) (>$75k turnover) Simple accounting Greater accounting Business
Slide 23: Our primary customer segments represent 50% of the TAM
Our primary customer segments represent 50% of the TAM and have deeper engagement with our platform 50% of TAM SECONDARY PRIMARY SEGMENTS SECONDARY Simple Complex Micro Small Medium Large self-employed self-employed (1–5 employees) (6–20 employees) (21–100 employees) (101+ employees) (<$75k turnover
Slide 24: Small and mid-size practices remain our primary AB segment
Small and mid-size practices remain our primary AB segment: the largest market opportunity with a strong propensity to adopt cloud software (like Xero) Xeroʼs AB segments SECONDARY PRIMARY SEGMENTS SECONDARY Sole proprietors Small practices Mid-size practices Large practices 10–250 clients 150–750 c
Slide 25: Top three super jobs represent ~$100b TAM
Xeroʼs top three super jobs, accounting, payments and payroll, represent ~$100b TAM in AU, NZ, US, UK and CA1 Rest of World (Xero markets) ~$100b 2 Acct. ($26b) Payroll ($14b) Payments3 ($59b) Other ($39b) Subscriber growth Other Xero markets (US, UK, CA) 22 14 55 Australia & New Zealand 3 <1 4 Acco
Slide 26: Payroll and payments are significant drivers of ARPU
Payroll and payments are among the highest needs our SMBs identify with, and significant drivers of ARPU in AU and UK Hypothetical industry ARPU1,2 in AU & UK (NZD) PRIMARY SEGMENTS Payments3 ~1.5x ~2x ~2x Payroll4 ~$75 ~$100 ~$200 ~$400+ Accounting5 15% 20% 35% 40% 5% 15% 85% 30% 75% 50% 30% Self-e
Slide 27: AU, UK and US provide the largest-scale revenue opportunities
AU, UK and US provide the largest-scale revenue opportunities for Xero in the medium term, while our other markets support long-term growth in our portfolio PRIMARY MARKETS SECONDARY Potential to be our largest markets Pursue efficient growth using APIs and partnerships Large Medium Small / Other AU
Slide 28: Our focus for FY25–27: the '3 x 3'
Our focus for FY25–27: Complete the most critical jobs in the biggest markets, embed key JTBD, and extend even further through the ecosystem and APIs Rest of World The ʻ3 x 3ʼ ($43b SAM1) SMALL 1 Complete the three key JTBD Singapore (accounting, payroll and payments) for SMBs and ABs in our large m
Slide 29: How to win
How to win The key tactics that drive success in the next three years 29
Slide 30: Winning on purpose
WINNING ON PURPOSE A Winning GTM Focused bets to Win the ʻ3 x 3ʼ Unleash Xero(s) to Win Playbook Win the Future 30
Slide 31: Our areas of focus for FY25–27
Our areas of focus for FY25–27 80% 20% A Winning GTM Focused bets to Win the ʻ3 x 3ʼ Unleash Xero(s) to Win Playbook Win the Future Product, pricing and Complete three critical jobs Evolve customer experience Deliver a purpose and packaging to increase in three largest markets through AI and mobile
Slide 32: Strategic deep-dives ahead
Strategic deep-dives ahead 11:00am – 12:00pm 1:00pm – 1:15pm 1:15pm – 2:05pm 2:05pm – 2:25pm Diya Jolly CPO Angad Soin CBOSO Ashley Hansen Grech CRO Kirsty Godfrey-Billy CFO Product and Product, pricing and Michael Strickman CMO Capital allocation technology packaging Fireside chat and GTM overview
Slide 33: Winning on purpose
WINNING ON PURPOSE Purpose Vision WHY WE To make life better for people in small business, To be the most trusted and insightful EXIST their advisors and communities around the world small business platform To be a world class SaaS business ASPIRATION To double the size of our business and deliver R
Slide 34: Product and technology
Investor Day Product and technology Diya Jolly Chief Product Officer February 2024 34
Slide 35: Business strategy focus areas
Business strategy focus areas Product and technology Focused bets to Win the ʻ3 x 3ʼ Unleash Xero(s) to Win Win the Future Complete three critical jobs Evolve customer experience Deliver a purpose and in three largest markets through AI and mobile performance driven EVP Reimagine the SMB journey Rea
Slide 36: Introduction and experience
Introduction and experience Diya Jolly Chief Product Officer 36
Slide 37: Observations: What's working well
Observations: Whatʼs working well Strong core Multiple jobs Global Robust Passionate product to be done reach ecosystem team 37
Slide 38: Observations: How to turbocharge the next stage of growth
Observations: How to turbocharge the next stage of growth Develop for Create delightful Experimentation Modernise Augment leadership specific segments end-to-end and data-driven while innovating team with strong and markets experiences analytics domain experts 38
Slide 39: Xero product vision
Xero product vision Win the ʻ3 x 3ʼ Win the future Complete three critical Evolve our customer Reimagine small business and jobs in three largest experience through AI and accountant and bookkeeper journey markets mobile Create a The most powerful Magical, small business Reimagine accounting persona
Slide 40: Win the '3 x 3'
« <e ¥ =o Win the ‘3 x 3’
Slide 41: Accounting
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Slide 42: Bank feeds and auto-reconciliation save customers time
Win the ʻ3 x 3ʼ Bank transactions in Xero Bank feeds and auto-reconciliation save Xero customers 5.5 hours per week1 1. Average from 183 customers surveyed in August 2023 4242
Slide 43: Boosted US bank feed quality and coverage
Boosted US bank feed quality and coverage Win the ʻ3 x 3ʼ 12 months ago: ~20 US direct bank Today: feeds 600+ US direct bank feeds Both Xero built and aggregator supplied direct bank feeds 43
Slide 44: Released Hubdoc bank statement extraction
Released Hubdoc bank statement extraction Win the ʻ3 x 3ʼ 44
Slide 45: Enhanced UK Xero Tax and launched tax manager
Enhanced UK Xero Tax and launched tax manager Win the ʻ3 x 3ʼ Personal tax Tax manager 45
Slide 46: Released automatic sales tax in US
Released automatic sales tax in US Win the ʻ3 x 3ʼ 46
Slide 47: What's ahead for accounting
Whatʼs ahead for accounting Win the ʻ3 x 3ʼ Key focus areas Strengthen our tax capabilities in the UK Localise and support core needs in the US Bulk tools and insights Jem Selig Freeman, Like Butter 47
Slide 48: Xero Payroll
Xero Payroll 4848
Slide 49: Easier setup and onboarding globally
Easier setup and onboarding globally Win the ʻ3 x 3ʼ Save time setting up Xero Payroll Reduce errors during setup 🌍 49
Slide 50: Enhanced payroll in Australia
Enhanced payroll in Australia Win the ʻ3 x 3ʼ Automation for leave management for contractors and casuals Tighter risk and fraud controls for superannuation 50
Slide 51: Significant improvements to Xero Payroll in the UK
Significant improvements to Xero Payroll in the UK Win the ʻ3 x 3ʼ Easier transition to Xero Payroll from another provider Support for salaried employees with non-traditional work hours Tools to better manage employee pensions 51
Slide 52: What's ahead for Xero Payroll
Whatʼs ahead for Xero Payroll Win the ʻ3 x 3ʼ Key focus areas Enhance employee onboarding Use automation and intelligence to reduce time and errors Enhance Xero Payroll for UK users with complex needs Don Oliver, Oliver's Taranga Vineyards 52
Slide 53: Payments
Payments 5353
Slide 54: Removing friction to onboard to Xero payments
Removing friction to onboard to Xero payments Win the ʻ3 x 3ʼ Improvements to onboarding Deeply embed payment service providers in Xero Auto-suggest bank account during payments onboarding Link existing payment service provider accounts with a click 54
Slide 55: Removing friction to pay an online invoice
Removing friction to pay an online invoice Win the ʻ3 x 3ʼ 55
Slide 56: Launched bill pay in the UK
Launched bill pay in the UK Win the ʻ3 x 3ʼ First major small business cloud accounting software in UK to offer on-platform bill payments using Open Banking 56
Slide 57: Launched e-invoicing in UK
Launched e-invoicing in UK Win the ʻ3 x 3ʼ Current markets New market Australia NZ Singapore UK Technology that powers e-invoicing 57
Slide 58: What's ahead for payments
Whatʼs ahead for payments Win the ʻ3 x 3ʼ Key focus areas Reduce friction for small businesses More ways to pay Enhance UK bill pay Neredah Blake, Blakeaway 58
Slide 59: Introducing: New partnership with BILL
INTRODUCING: New partnership with BILL 📣 Win the ʻ3 x 3ʼ Deeply embedded experience Robust bill pay capabilities Broad payment choices Better cash flow visibility and control IN DEVELOPMENT 59
Slide 60: In development: US bill pay beta
In development: US bill pay beta Win the ʻ3 x 3ʼ DEMO 60
Slide 61: Win the future
Win the future 61
Slide 62: AI already powers a range of products across Xero
AI already powers a range of products across Xero Win the future 62
Slide 63: We see AI playing a vital role in three ways
We see AI playing a vital role in three ways Win the future Automating and streamlining Delivering the right insights Introducing conversational repetitive, time-consuming tasks at the right time interfaces using generative AI 63
Slide 64: Automating and streamlining repetitive, time-consuming tasks
Automating and streamlining repetitive, Win the future time-consuming tasks Bank reconciliation predictions How Hubdoc uses OCR AI technology 1. Scan a physical bill 2. Create the appropriate bill automagically 3. AI matches if there is an existing 4. For new suppliers, it verifies if the supplier i
Slide 65: Delivering the right insights at the right time
Delivering the right insights at the right time Win the future Xero Analytics Plus 65
Slide 66: Launched conversational interfaces using Gen AI
Launched conversational interfaces using Gen AI Win the future Gen AI in Xero Central Xero setup guide 66
Slide 67: Introducing Just Ask Xero
Introducing Just Ask Xero Win the future A smart and trusted business companion for small businesses and advisors 67
Slide 68: Just Ask Xero
Just Ask Xero Apply a late payment fee in Xero Update a quote via WhatsApp Create an invoice via email 68
Slide 69: Our commitment to responsible data use and security
Our commitment to responsible data use Win the future and security Data use and security Xeroʼs responsible data use commitments Our responsible data use commitments guide every area of data use (including AI) Our products are built using leading security and privacy measures 69
Slide 70: Unleash Xero
Unleash Xero 70
Slide 71: Scaling our organisation for the next arc of growth
Scaling our organisation for the next arc of growth Unleash Xero Product and Technology Modernising while delivering operating model customer value 71
Slide 72: Updates to our Product and Tech operating model
Updates to our Product and Tech operating model Unleash Xero Cross-product planning and delivery process Regional product teams focused on our three core markets Data, analytics and experimentation 72
Slide 73: Xero's modernisation approach
Xeroʼs modernisation approach Unleash Xero Deep data, and analysis, to understand bottlenecks and enhance developer productivity Balance modernisation with customer delivery Align modernisation with where we want to innovate 73
Slide 74: Payroll modernisation case study
Payroll modernisation case study Unleash Xero Help small businesses Respond to how Technology upgrade for A new cross-functional confidently manage customer needs and improved efficiency and team with diverse skills payroll technology have evolved performance 74
Slide 75: Payroll modernisation case study
Payroll modernisation case study Unleash Xero Unused code Releasing a change to the codebase Setting up test environments REMOVED PREVIOUSLY PREVIOUSLY ✂ 50% Over 1 week Many days NOW NOW On demand Under 45 min 75
Slide 76: What's next for our operating model and modernisation
Whatʼs next for our operating model and Unleash Xero modernisation Continue localised development for key markets Bolster domain-specific expertise Holistic location strategy to increase effectiveness Balance customer delivery while modernising Xero, Melbourne HQ 76
Slide 77: Recap of our talk today
Product and technology Recap of our talk today Win the ʻ3 x 3ʼ Core accounting Xero Payroll Payments ● Boosted US bank feed quality and coverage ● Easier setup and onboarding globally ● Removing friction to onboard to Xero ● Released Hubdoc bank statement extraction ● Enhanced payroll in Australia p
Slide 78: Strategic deep-dives ahead
Strategic deep-dives ahead 11:00am – 12:00pm 1:00pm – 1:15pm 1:15pm – 2:05pm 2:05pm – 2:25pm Diya Jolly CPO Angad Soin CBOSO Ashley Hansen Grech CRO Kirsty Godfrey-Billy CFO Product and Product, pricing and Michael Strickman CMO Capital allocation technology packaging Fireside chat and GTM overview
Slide 79: Product, pricing and packaging
Investor Day Product, pricing and packaging Angad Soin Chief Business Operations & Strategy Officer February 2024 79
Slide 80: Introduction and experience
Introduction and experience Angad Soin Chief Business Operations & Strategy Officer 80
Slide 81: Our SMB customers have varying needs
Our SMB customers have varying needs to stay compliant and run their businesses SECONDARY PRIMARY SEGMENTS SECONDARY Micro Small Medium Non-operating entity Non-trading entity Self-employed (1–5 employees) (6–20 employees) (21–100 employees) JTBD1 Example A property investor A growing business An es
Slide 82: Our current product ladder
Our current product ladder Customer segments SECONDARY PRIMARY SEGMENTS SECONDARY Self-employed Non-operating Non-trading Micro Small Medium entity entity Simple Complex (1-5 employees) (6-20 employees) (21-100 employees) (<$75k turnover) (>$75k turnover) Current state product plans (simplified view
Slide 83: Plan overview: AU example
Plan overview: AU example Example AU market plans1 (Plans shown are not exhaustive, descriptions are not comprehensive) $6 $12-232 Ledger Cashbook Everything in Ledger, plus: Partner Edition Prepare annual accounts (bank Receive client bank feeds and Partners reconciliation, fixed asset generate GST
Slide 84: Xero's small Business Edition plans are competitively priced
Represents least and most Xeroʼs small Business Edition plans are expensive advertised plans Xero weighted average plan price2 competitively priced Starting price per month1 Country 0 10 30 50 70 90 110 130 150 Australia AU competitor A Starter Ultimate (AUD) AU competitor B UK UK competitor…
Slide 85: We have a different product mix across channels
We have a different product mix across channels Our Partner channel accounts for ~2 in every 3 subs, contributing both Business and Partner Edition plans1 Partner 67% Edition Partner channel 70% Business 33% Edition Direct Business channel 30% 100% Edition Subs Plan 1. Data shown for FY23 and reflect
Slide 86: Product, pricing and packaging levers
Product, pricing and packaging levers Pricing Packaging and bundling Product ladder Merchandising (RRP for plans) (Plan features and add-ons) (Suite of plans) (xero.com, Xero HQ) 86
Slide 87: Packaging case study: Effective bundling increases adoption and LTV
Packaging case study: Effective bundling increases adoption and LTV AU subscribers nearly Net new AMRR Payroll adoption rate ~3x more likely to use (NZD) (% subscriptions using payroll in the months since launch)1 payroll2 Acquired Paycycle Launched full, bundled AU in 2011 in AU payroll product in 2
Slide 88: What's next for product, pricing and packaging
Whatʼs next for product, pricing and packaging A Winning GTM Playbook Invest in pricing capability: 1 Team, data, experimentation Product, pricing and packaging to increase usage and growth Optimise merchandising: 2 Match SMBs to the right plans Acquire and onboard subscribers to the right Simplifie
Slide 89: Fireside chat with CRO & CMO
Fireside chat with CRO & CMO Hosted by Kirsty Godfrey-Billy Chief Financial Officer 8989
Slide 90: Introduction and experience
Introduction and experience Ashley Hansen Grech Michael Strickman Chief Revenue Officer Chief Marketing Officer 90
Slide 91: GTM overview
Investor Day GTM overview Ashley Hansen Grech Michael Strickman Chief Revenue Officer Chief Marketing Officer February 2024 91
Slide 92: Our sales leadership team
Our sales leadership team Anthony Drury Nigel Piper Managing Director, ANZ EGM Customer Experience Ex Zip Co, PayPal, AMEX Ex IRD NZ Faye Pang Pete Koteras Country Manager - Canada EGM Revenue Ops Ex Uber & Strategy Ex National Australia Bank Ashley Hansen Grech Chief Revenue Officer Jeremy Butteriss
Slide 93: Our GTM strategy is designed to meet customers where they are
Our GTM strategy is designed to meet customers where they are with four different motions across our two key sales channels Collaboration Modes Do It Yourself Do It Together Do It For Me (DIY) (DIT) (DIFM) Channels Xero Direct channel Partner channel SMB direct Partner attributed Partner originated P
Slide 94: Both of our channels are valuable to us
Both of our channels are valuable to us ABs play a key role in our three focus markets SMB accounting software SAM1,2 (SAM value) $22.6b $2.9b $2.8b $16.9b Use an AB 48% Use an AB Do not use an AB 52% Do not use an AB AU UK US Total1 1. SMB accounting software SAM based on AU, UK and US for accounti
Slide 95: Our Partner and Direct channels form a flywheel to drive growth
Our Partner and Direct channels form a flywheel to drive growth Partner Direct 95
Slide 96: Partner channel
Partner channel Sach Yadav, Pennyhills 9696
Slide 97: Sales teams focus on driving acquisition and deepening Partner relationships
Partner channel Sales teams focus on driving acquisition and deepening Partner relationships Partner sales CX Lead generation Inbound Growth-focused Retention Brand, events Nurturing and converting Onboarding, establishing Supporting customers new partners partners on product Prospect Qualify Convin
Slide 98: Partner channel levers
Partner channel Partner channel levers Acquiring Lead generation (Events, Sales Onboarding new partners digital) (Inbound/growth teams) (Partner Central) Deepening relationships Account management Partner success Partner program with existing (Partner growth & support) (Education) (Incentives, rewar
Slide 99: US case study: Focusing on CAS to support product mix
Partner channel US case study: Focusing on CAS to support product mix Net new AMRR Focus on CAS partners US focus on Client Advisory (NZD) Services (CAS) segment of ~2x increase accountant and bookkeepers Initiative driving a ~2x uplift in CAS partner engagement with Xero1 Start FY24 End H1 FY24 Ini
Slide 100: What's ahead for the Partner channel
Whatʼs ahead for the Partner channel Partner channel A Winning GTM Playbook Deeper investment in B2AB marketing 1 engine to turbocharge demand Product, pricing and packaging to increase usage and growth Optimise partner segmentation and 2 sales coverage model for greater yield Acquire and onboard su
Slide 101: Direct channel
Direct channel Doggo, South Africa 101 101
Slide 102: Our marketing leadership team
Our marketing leadership team Angela Sullivan EGM Communications Matt Moore Ex IBM EGM Product Marketing Ex Winshuttle, Sears Home Service Adam Roberts EGM Data Science, Analytics & Insights Ex Uber, TripAdvisor Francesco Pittarello EGM Performance Michael Strickman Marketing Chief Marketing Officer
Slide 103: Our Direct channel teams focus on driving acquisition and deeper engagement
Our Direct channel teams focus on driving Direct channel acquisition and deeper engagement Brand Regional marketing Performance channels Customer engagement Growing awareness/demand, Adapting marketing efforts to Leveraging free and paid channels Supporting SMB mid-funnel marketing local markets to a
Slide 104: Direct channel levers
Direct channel Direct channel levers Free levers Paid levers Acquiring SEO SEM Social Display Brand (Google, Bing) (Google, Bing) (Meta, then others) (Google) (Online and offline) new SMBs Lifecycle marketing Promotions and offers (CRM) Deepening Free levers Paid levers relationships with existing Lif
Slide 105: Promotions case study: Increasing efficiency in Direct
Direct channel Promotions case study: Increasing efficiency in Direct new AMRR of selected promotional experiments1 Net Outcomes Experimentation on (NZD) (Impact on conversion and acquisition cost per subscription) promotion/offer size, ~2.1x ~90% type and length increase lower ~1.3x increase ~2.1x up
Slide 106: What's ahead for the Direct channel
Whatʼs ahead for the Direct channel Direct channel A Winning GTM Playbook Deeper investment in B2AB marketing 1 engine to turbocharge demand Product, pricing and More dynamic allocation of packaging to increase 2 usage and growth marketing spend based on efficiency Grow central capabilities that scal
Slide 107: Capital allocation and outlook
Investor Day Capital allocation and outlook Kirsty Godfrey-Billy Chief Financial Officer February 2024 107
Slide 108: Key metrics we will use to measure our success
Key metrics we will use to measure our success Rule of 40 outcomes consistent with our longer-term aspiration1 Revenue growth FCF margin FY23: 28% FY23: 7% FY23: Net subscriber ARPU OPEX ratio LTV / CAC Revenue / FTE additions FY23: $34.61 FY23: 470k FY23: 80.7%2 FY23: 6.5 FY23: 284k Increase value
Slide 109: A strong balance sheet provides optionality
A strong balance sheet provides optionality Free cash flow improving, liquidity / strength maintained Convertible note provides funding and balance sheet flexibility Free cash flow (NZD) Key convertible note features to be aware of: Cash and short-term deposits (NZD) Convertible note principal amoun
Slide 110: The best use of capital is to invest in Xero's growth…
The best use of capital is to invest in Xeroʼs growth… Available capital1 Invest to support Rule of 40 outcomes in-line with aspiration Product development GTM/CAC Build Partner Buy Investment to tightly align with FY25-27 strategy e.g. Win the ʻ3 x 3ʼ Free cash flow2 Return to shareholders 1. Assum
Slide 111: …with a disciplined portfolio allocation framework and processes
…with a disciplined portfolio allocation framework and processes We will purposefully allocate resources to our highest returning areas 80% 20% A Winning GTM Focused bets to Win the ʻ3 x 3ʼ Unleash Xero(s) to Win Playbook Win the Future Focused in long term, dynamic in short term, measured throughou
Slide 112: Programmatic M&A has been part of Xero's success
Programmatic M&A has been part of Xeroʼs success Targeted on solving critical functionality in our core JTBD Provided key functionality to better serve core customer segments Key Success Factors Accessed best-in-class capability Increased the value of our offering by combining with our core propositi
Slide 113: We will continue to employ programmatic M&A
We will continue to employ programmatic M&A Criteria for M&A supporting Our approach to M&A going forward the FY25-27 strategy will be focused ● Aligned to the ʻ3 x 3ʼ (including ● Strategic clarity supports greater focus in capital sub jobs) allocation ● Best-in-class capabilities ● Larger scale an
Slide 114: Reiterating existing FY24 outlook
Reiterating existing FY24 outlook FY24 outlook1 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 Recap of approach to long-idle subscriptions2 At
Slide 115: Our aspiration
Our aspiration1 We aspire to be a world class SaaS business We believe we have the opportunity to both double the size of our business2 and deliver Rule of 40 or greater performance3,4 As we grow, we will also seek to be more balanced between subscriber growth and ARPU expansion 1. Xeroʼs aspiration
Slide 116: Recap
Recap 1 2 3 4 Strong Focused Turbocharged High track record vision capabilities aspirations Innovative product customers Well positioned for large TAM Ready to drive To be a world class love and delivering on our opportunity with focus on new levers for growth SaaS business commitments what matters
Slide 117: Q&A session and wrap-up
Investor Day Q&A session and wrap-up February 2024 117
Slide 118: Appendix
Investor Day Appendix February 2024 118
Slide 119: Glossary
Glossary Adjusted EBITDA Business Edition (BE) CX Adjusted EBITDA (a non-GAAP financial measure) is Xeroʼs Business Edition plans, which include Starter, Customer Experience. provided as Xero believes it provides useful Standard, Premium, Ultimate and Payroll only EVP information for users to unders
Slide 120: Glossary
Glossary Lifetime value (LTV) OPEX ratio Subscribers LTV is the gross margin expected from a subscriber The ratio of operating expenses to operating Subscriber means each unique subscription to a over the lifetime of that subscriber. This is revenue. Xero-offered product that is purchased by a user c
Slide 121: Financial performance
Financial H1 FY22 H2 FY22 FY22 H1 FY23 H2 FY23 FY23 $000s H1 FY24 performance Total operating revenue Gross profit 505,703 440,417 591,116 517,014 1,096,819 957,431 658,512 572,912 741,372 649,029 1,399,884 1,221,941 799,547 699,790 Gross margin 87.1% 87.5% 87.3% 87.0% 87.5% 87.3% 87.5% Sales & mark
Slide 122: SaaS metrics summary
SaaS metrics summary ANZ International Group Australia, New Zealand UK, US, CA, ROW Global Total FY22 FY23 H1 FY24 FY22 FY23 H1 FY24 FY22 FY23 H1 FY24 ARPU $32.00 $34.24 $36.99 $30.53 $35.10 $37.91 $31.36 $34.61 $37.38 CAC months 8.8 9.1 8.4 22.9 23.3 23.5 15.5 15.9 15.6 Churn 0.66% 0.68% 0.72% 1.23
Slide 123: FY24 operating expense ratio composition
FY24 operating expense ratio composition EXPENSE RATIO FY23 FY24 EXPECTATION SALES & 33.7% of Expected ratio trend vs FY23: Flat to down MARKETING revenue PRODUCT DESIGN 35.0% of & DEVELOPMENT revenue Expected ratio trend vs FY23: Down GENERAL & 12.0% of ADMINISTRATION revenue Expected ratio trend v
Slide 124: Jobs to be done
Jobs to be done Jobs reflect the common tasks that a customer can perform on the Xero platform to run their business. A job does not directly represent a specific product or solution. Some examples are below. XERO PRODUCT AREAS Accounting Payments Payroll Adjacents JOB AREAS Book- Reporting & Invoic
Slide 125: Contact
Contact Nicole Mehalski INVESTOR RELATIONS [email protected] +61 400 947 145 Kate McLaughlin COMMUNICATIONS [email protected] +64 27 533 4529 125
Slide 126: Xero Beautiful business
<S)(O8 Beautiful business