Xero narrowed its first-half loss and posted positive pretax earnings for the first time, while announcing it will delist from the NZX in favour of the ASX in February next year.
The cloud-based accounting software firm said it will keep its headquarters in Wellington but shift its listing across the Tasman to encourage a broader range of analyst and broker coverage and increase its relevance “to a more diverse range of large investors”. The move was in the best interests of the company and its shareholders, it said.
Xero’s net loss was $21 million in the six months ended September 30 from a loss of $43.9 million a year earlier, it said in a statement. Earnings before interest, tax, depreciation and amortisation was $5.4 million compared with an ebitda loss of $25.9 million a year earlier. Its ebitda margin turned positive at three percent from negative 19 percent a year earlier. Operating revenue jumped 37 percent to $187.8 million.
Xero’s shares last traded at $34.05 and have soared 95 percent this year, the third-best performance on the S&P/NZX 50 Index behind A2 Milk and Synlait Milk. Its $4.7 billion market capitalisation puts it just behind Fletcher Building at $4.87 billion and in front of Ryman Healthcare on a valuation of $4.6 billion. The company first listed in June 2007 and topped 1 million global subscribers in 2017. Today it said subscribers have risen to about 1.2 million.
“We’re still building the business for massive scale,” chief executive Rod Drury told BusinessDesk. “We’re pretty happy. Things are going pretty well. The numbers are moving north.”
Gross margin widened to 80 percent in the first half from 75 percent a year earlier and Xero said today that further improvement is expected “through economies of scale and automation”. The company recorded positive operating cash flow of $6.1 million in the first half, a $19.4 million improvement on a year earlier.
The company reiterated that UK customers rose to 253,000 as at September 30, from 212,000 six months earlier. Xero added 79,000 UK customers in the 2017 financial year, where it had been teaming up with the major banks and building an active accounting and bookkeeping sales channel. In North America subscribers rose 43 percent to 110,000. It has more than 518,000 subscribers in Australia and more than 271,000 in New Zealand, its biggest markets, while in its rest-of-the-world segment it had 47,000 (up 62 percent).
Annualised committed monthly revenue (ACMR) rose 38 percent to $416.9 million, with international ACMR jumping 50 percent and ANZ region by 32 percent. It held about $23 million of cash as at September 30, down from $27.7 million as at March 31. In addition today, Xero said it has arranged a stand-by bank facility of $100 million with Bank of New Zealand and ANZ Bank New Zealand, although it has no plans to draw down on it at this stage.
Xero didn’t give any specific guidance, saying “operating metrics are expected to improve in FY18 as the company drives efficiencies through automation and economies of scale”.
“We’re excited to enter this new phase of self-sustainable growth,” Drury said. “We’re still in the early stages of delivering cloud services to the many millions of small businesses around the world and believe we are well positioned to continue growing for many years to come.”