Xero quits developing in-house US payroll product, signs up with Gusto

Friday 20th July 2018

Xero has stopped developing a payroll product in the US and will instead team up with existing payroll services provider Gusto, integrating their respective platforms.

The Wellington-based, ASX-listed company today said the decision to stop development will incur an impairment charge of $16.2 million in the first half of the March 2019 year, freeing up resources to work on payroll in other markets, where Xero already covers 1.25 million employees. Gusto already handles all aspects of payroll for small business owners across 50 US states, and Xero expects the tie-up will make its North American offering more attractive.

"The strategic alliance with Gusto is an important step in the implementation of our US growth strategy," chief executive Steve Vamos said in a statement to the ASX. "This strategic alliance allows us to focus our investment in our payroll product and brings important financial benefits and more efficient deployment of our resources as we execute our growth strategy."

In May, Xero closed in on reporting its maiden profit, with positive earnings before interest, tax, depreciation and amortisation. It's been focusing more closely on improving its efficiency, with wider gross margins coming from the cheaper hosting costs using Amazon Web Services.

Xero went through a period of change in the 2018 year, with founder Rod Drury stepping back from the management of the company, replaced by former Microsoft Australia and New Zealand head Vamos, and de-listing from the NZX to take up a sole listing on the ASX, in a bid to boost global fund managers' ability to hold Xero as it heads towards profitability.

The ASX-listed shares rose 1.8 percent to A$46.11 today.

The integration of the platforms is expected to be completed by early 2019.

(BusinessDesk)

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