Xero narrows full-year loss, operating earnings in the black

Shares hit all-time high as the company clocks its first ebitda-positive full-year result.
New Xero chief executive Steve Vamos

Xero has reported a full-year net loss of $27.9 million, an improvement on its year-ago loss of $69m.

In terms of operating earnings, the accounting software was in the black for the first time for a full-year result (it was also ebitda-positive for its 2018 half-year result).

Ebitda for 2018 was $26m against the year-ago -$28.6m.

Revenue rose 38% year on year to $406.6m, with Xero's current monthly revenue run-rate equating to annual revenue of $484m – or $121m ahead of the year-ago pace.

Gross margin increased by 4 points to 80%. Customer acquisition costs and product development costs as a percentage of revenue both fell slightly.

Xero now has 1.386m customers, a 34% year-on-year increase.

The key North American market grew the fastest (by 43% to 132,000 customers) but remains a relatively small chunk of Xero's total subscriber base, which still centres on Australiasia (884,000) and the UK (312,000).

Regional reveal MYOB was quick to offer a jab, with spokesman Conor Roberts saying Xero's 31% growth to 884,000 represented a slow down from its mid-year pace (33%) and was behind his own company, at least on a percentage growth basis. MYOB grew 60% in Australasia (its only market) to 399,000 users, Mr Roberts says.

Shares at record
Shares [ASX:XRO] closed on Wednesday at $A41.28, giving it an all-time market cap high of $A5.73 billion ($5.91b; Xero remains New Zealand-registered and all its results figures are in New Zealand dollars; all of its market data is now in Australian dollars).

As the ASX opened following the result, shares rose 1.52% $A41.91 (for a $NZ5.92b market cap).

Xero [ASX:XRO] five-year share price performance. Ahead of today's earnings, there was no major news, but the shift to an ASX-only listing (from February) and Xero's addition to the ASX100 (in March) could have contributed to its recent runup.

Life after Rod
Steve Vamos, who took over from Rod Drury as chief executive on April 1 (the first day of Xero's 2019 year) emphasised continuity of strategy during a relatively low-key conference call with analysts and media.

Longer term, eyes will be on whether he will continue Mr Drury's push for growth over profit, or shift the online accounting software company's centre of gravity more toward the latter.

Another issue that will likely be on the agenda: Mr Vamos maintaining his directorships at Fletcher Building and Telstra (two companies facing complex issues) as he takes over the reins at Xero. The arrangement has already drawn criticism from the NZ Shareholders Association, which says he risks being over-committed.

Analyst ratings ahead of this morning's earnings report.

For now, all we have is Xero's ASX presentation, which rounds-off with the broad-strokes, Drury-esque guidance that "Cash outflow in FY19 is forecast to reduce from FY18. Xero is managing the business to cash flow break-even within its current cash balance through operational efficiencies. Following cash flow break-even, it is intended that surplus cash flow will be reinvested to drive long-term shareholder value."

CFO Sankar Narayan did not add anything to that forecast during a conference call, which saw him read the above from a slide, verbatim.

Related video: Xero's NZ country manager, Craig Hudson, on hitting an AI milestone.

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