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Operating Revenue: Grew 20% year over year to 1,194 million, or 18% in constant currency. Adjusted EBITDA: Increased 12% year over year to 351 million. Rule of 40 Outcome: Achieved 44.5%, an increase of 0.6 percentage points year over year. Subscriber Growth: Increased by 10% to nearly 4.6 million subscribers. ARPU Growth: 15% on a reported basis, 8% in constant currency. AMRR: Reached $2.7 billion, representing a 26% year over year growth, or 19% in constant currency. Gross Profit Margin: 88.5%. Free Cash Flow Margin: 26.9%. Net Cash Position: $3.2 billion at the end of the half. Operating Expenses Ratio: 72.8% excluding acquisition costs, with a revised full-year expectation of around 70.5%. Sales and Marketing Costs: 31.7% of revenue, a reduction of 0.3 percentage points year over year. Product Design and Development Costs: Grew 18% year over year, equal to 28.2% of revenue. General and Administration Costs: 12.9% of revenue, an increase of 2.4 percentage points. International Revenue Growth: 24% year over year. UK Revenue Growth: 25% with subscriber growth of 13%. North America Revenue Growth: 21%, adjusted to 26% excluding zerocon impact. Rest of World Revenue Growth: 22% with subscriber growth of 11%. Melio Acquisition: Completed in October, with pro forma revenue growth of 53% year over year.

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Release Date: November 12, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Xero Ltd (XROLF) reported a strong revenue growth of 20% year over year, reaching $1,194 million. The company achieved a Rule of 40 outcome of 44.5%, demonstrating strong cash generation and profitability. International revenue grew by 24% year over year, with significant contributions from the UK and North America. The acquisition of Melio is expected to accelerate growth in the US market, with Melio's revenue growth reaching 68%. Xero Ltd (XROLF) is making strategic investments in AI and mobile, enhancing product offerings and customer value.

Negative Points

The share price experienced a decline due to an implied accounting EBIT miss versus consensus expectations. Churn rates have increased slightly, attributed to a focus on business edition and higher churn in direct channels. North American revenue missed market estimates, partly due to weaker performance in Canada and cycling of ZeroCon revenue. The integration of Melio may lead to increased interest costs and reduced interest received, impacting financial performance. The company faces challenges in improving backbook mix, requiring sophisticated sales motions and orchestration.

Story Continues

Q & A Highlights

Q: The share price is down today, possibly due to an implied accounting EBIT downgrade. Can you clarify if this is an operational issue or just an accounting miss? A: Claire Bramley, CFO: We are pleased with our strong execution in H1, showing strong top-line growth. The reduction in the OE ratio guidance includes Melio, but the improvement is mainly from operational efficiencies and revenue, not capitalization. The accounting miss is due to amortization and purchase price adjustments, not operational performance.

Q: With churn ticking up, should we expect subscriber growth to be lower but with better ARPU outcomes? A: Sukhinder Cassidy, CEO: Churn is still below pre-pandemic levels. The direct channel, which has higher churn, is performing well and brings higher ARPU and lifetime value. We focus on quality and quantity of subscribers, balancing both effectively.

Q: North America's revenue missed estimates. Was this due to Canada being weak or cycling zero con revenue? A: Sukhinder Cassidy, CEO: The miss is due to zero con and subdued performance in Canada. However, the US alone grew about 33% when adjusted for these factors. H1 is seasonally weaker for North America, but we feel good about the underlying growth.

Q: Can you clarify the integration timeline for Xero and Melio, and how it affects cross-sell and syndication benefits? A: Sukhinder Cassidy, CEO: We are excited about the integration, with Melio Bill Pay launching in December 2025. The integration is ahead of schedule, and we are confident in meeting our long-term aspirations, including doubling revenue by FY28.

Q: How are you seeing demand from SMBs compared to six months ago? A: Sukhinder Cassidy, CEO: We see continued strong demand for Xero products. Indicators like XFBI show signs of recovery in Australia and New Zealand, steady performance in the UK, and strong optimism in the US despite uncertainty.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

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