Xero narrows 1H loss as revenue rises, says it's well positioned to breakeven

Thursday 3rd November 2016

Xero, the cloud-based accounting software firm, narrowed its first-half loss for 2016 as revenue lifted 48 percent, with its cash burn continuing to slow.

The Wellington-based company said its net loss was $43.9 million in the six months ended Sept. 30, from a loss of $44.3 million a year earlier. Operating revenue rose to $137.2 million from $92.9 million, with operating and investing cash outflows down 7.5 percent to $45.8 million.

Xero has $137.9 million cash and short-term deposits on hand, and is well positioned to manage its cash usage to breakeven, it said. It reported an earnings before interest, taxation, amortisation and depreciation loss of $25.9 million from $33.8 million a year earlier, with its ebitda loss margin down to 19 percent from 36 percent.

The company expects to have 1 million customers this year, and has set a target of achieving $1 billion in annual revenue. It had 862,000 customers as at Sept. 30, with annualised monthly committed revenue of $303.2 million, despite the stronger kiwi dollar negatively impacting that figure by $29.9 million.

Xero said its financial performance was impacted by the costs of transitioning from Rackspace to Amazon Web Services, while a recent executive structure overhaul will support it to reach its $1 billion goal. The management restructure sees country managers reporting to chief executive Rod Drury, the disestablishment of Andy Lark's chief marketing and revenue officer position and the creation of a chief marketing officer role to focus on brand and marketing.

Drury said the company is well-positioned to capitalise on machine learning, and it expects all business software vendors to re-platform over the next few years to take advantage of the services available on larger cloud platforms.

"The network effect of strategic partnerships with top banks, financial institutions and global technology companies, combined with Xero’s product and platform, has created an opportunity to pull away from the competition and leverage the significant white space in the global small business market," Drury said.

The company has hired former Capital One executive Keri Gohman to run its American business from Denver "where future US operational investments will be focused, supporting Xero's hubs in San Francisco, New York, Austin and Seattle" when she starts in December.

In the year since Sept. 30, 2015, Xero saw 64 percent growth in North American subscribers to 77,000, while its subscribers in Australia and New Zealand rose 39 percent to 592,000. In the UK, subscriber numbers advanced 61 percent to 164,000.

The shares lasted traded at $16.90, and have dropped 9.9 percent this year.

BusinessDesk.co.nz

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