LA Private

Xero shares back in triple figures after strong result

The arrival of accounting software giant Xero’s (ASX:XRO) 2022-23 annual results yesterday brought with it news of cost cuts, higher revenue and more subscribers that sent the shares back over the $100 mark.

The price surge was a clear vote of confidence in the new CEO Sukhinder Singh Cassidy, who set the new path and warned of cost cuts in an update in early March.

The $102.70 peak yesterday was the highest the shares have been since March, 2022 and they ended the day up 8.9% at $102.49.

Apart from the cuts and impairments confirmed yesterday, Xero revealed it had had a good year – there was a solid rise in revenue and earnings which made it easier to accommodate the impact of the multi-million dollar write down and impairment of poorly-performing assets.

The cuts and writedowns and strategy change were revealed in the update in early March after the new CEO took charge and revealed her vision for Xero’s future growth.

Thursday saw the release of full year earnings for the year to March 31 which (before write downs etc) saw a 28% jump in revenues to more than $NZ1.4 billion, a 45% jump in adjusted EBITDA to $NZ307 million.

That was the good news – then came the bad with the costs of the cleanout detailed.

“During FY23, Xero also incurred non-cash impairments and associated costs, and restructuring charges,” the company said.

“This led to EBITDA decreasing 26% compared to FY22 to $NZ158.4 million. This includes a $NZ77.9 million impairment to Planday (mainly reflecting a reduction in market valuation multiples along with operational performance), $NZ48.5 million of impairments and other costs related to Waddle, $NZ34.7 million in restructuring costs, and non-cash accounting revaluation gains of $NZ17.9 million.

Those writedowns pushed Xero deeper into loss in the year to March 31 with a net loss of $NZ113.5 million ($A106.5 million), up from a loss of $NZ9.1 million in the previous year.

But it was the sharp increase in revenues and subscribers that buoyed investors and sent shares surging on the day.

While Xero reported a 14% rise in subscriber numbers to more than 3.74 million worldwide, it still added 470,000 new subscribers (which was down from the 530,000 the year before).

Ms Cassidy pinpointed the strong performance in the statement: “Xeros strong underlying operating result is underpinned by continued revenue momentum from both subscriber and ARPU (Average Revenue Per User) growth.

“Our FY23 performance demonstrates Xeros resilience to the macroeconomic conditions of the past year, and the value we provided to small business customers in a challenging environment.

“We remain well positioned to take advantage of the significant long-term opportunity for cloud accounting and our small business platform as we prioritise disciplined, customer-focused growth.”

At the same time the company has set itself the big target of boosting its margin in 2023-24, which it thinks will be achieved by the cost cuts and other changes.

Ms Cassidy said in the statement to the ASX and NZX that, 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’s 87.3% (which was unchanged from 2021-22),” she said.

And hopefully see Xero firmly back in the black for 2023-24.