Highlights

• Operating revenue grew 31% to NZ$2,753.1 million, while net profit after tax fell 27% to NZ$167.4 million.

• Customers reached 4.92 million after 506,000 net additions, with average monthly churn at 1.14% for the year.

• The board authorised share purchases of up to A$550 million in FY27 to offset dilution from share-based compensation.

• FY27 guidance targets operating revenue of NZ$3,620 million to NZ$3,730 million and adjusted EBITDA of NZ$860 million to NZ$920 million.

Revenue of NZ$2,753.1 million, up 31%, came with a profit squeeze at Xero Limited (ASX:XRO) as the small business accounting platform absorbed the cost of buying US bill-payment provider Melio. Net profit after tax for the year to 31 March 2026 fell 27% to NZ$167.4 million, even as free cash flow rose 9% to NZ$554.0 million. Shares were trading at A$64.19 on 23 October 2026, up 0.77%.

Melio Reshapes the US Story

The Melio acquisition completed early, and the company said pro-forma revenue growth was 50% for the year. Core US revenue grew 30% on an organic basis, and the market added 110,000 new customers. Xero launched bill payments in March 2026 to put accounting and payments on one platform.

The deal left marks on the accounts. Transaction costs totalled NZ$50.6 million, partly offset by a NZ$90.5 million foreign exchange translation gain recorded in other income. Operating income fell 13% to NZ$316.1 million, though it was broadly flat excluding Melio-related acquisition costs.

At its annual meeting on 27 August 2026, management said it remains on track for cross-sell and infrastructure synergies and expects Melio to reach run-rate adjusted EBITDA breakeven by the end of the second half of FY28.

Customer Growth Outpaces Margin Pressure

Xero ended the year with 4.92 million customers, up 11%. Net additions of 506,000 compared with 254,000 a year earlier. Average revenue per customer rose 23% to NZ$55.44, and average monthly churn was 1.14%.

Annualised monthly recurring revenue reached NZ$3.27 billion, up 37% or 25% organically. Australia and New Zealand revenue rose 18% to NZ$1.4 billion, while the UK grew 26%, helped in part by early flow-through from Making Tax Digital for Income Tax.

Margins moved the other way. Gross margin slipped to 83.9% from 89.0%. Adjusted EBITDA still rose 18% to NZ$757.4 million, and the company reported a Rule of 40 score of 48.5%, or 36.0% on a pro-forma basis.

AI Features Move Into the Product

Xero's AI assistant, Just Ask Xero, has reconciled more than 40 million transactions with a reported 97% accuracy. The company said 500,000 users have adopted generative AI features launched in the past 18 months.

It also announced a partnership with Anthropic, expanded its work with OpenAI and introduced XeroForce, a natural language agent builder in invite-only alpha at the time of results. At the annual meeting, management said it plans to bundle core AI capability into plans, offer add-ons for wider access and test consumption-based pricing.

FY27 Guidance, Buyback and the FY28 Aspiration

For FY27, Xero guided to operating revenue of NZ$3,620 million to NZ$3,730 million and adjusted EBITDA of NZ$860 million to NZ$920 million. The EBITDA range includes up to NZ$55 million of incremental US brand spend and is expected to weigh more heavily towards the second half.

The board authorised on-market share purchases of up to A$550 million in FY27, intended to offset dilution from share-based compensation, including historical staff share issuance.

The medium-term aspiration set alongside the Melio deal remains in place: FY28 revenue of more than double FY25's NZ$2,103 million, excluding revenue synergies, and group Rule of 40 performance above 40. The company expects pro-forma outcomes below that level before FY28. Xero will report half-year results to 30 September 2026 on 12 November 2026. Its remuneration report received 29.35% support at the annual meeting.