Highlights

  • Operating revenue up 20 % to NZD 1,194 million (approx. A$1.16 billion) in H1 FY26.
  • Free cash flow reached NZD 321.1 million and free cash flow margin expanded to 26.9 %.
  • Combined growth and cash-flow metric (“Rule of 40”) achieved 44.5 % in the half year.

International small-business software provider Xero Limited (ASX:XRO) today announced its financial results for the half year ended 30 September 2025 (H1 FY26). The company recorded operating revenue of NZD 1,194 million (approximately AUD 1.16 billion), up 20 % from the prior year, alongside a free cash flow margin of 26.9 %. The combined outcome produced a “Rule of 40” result of 44.5 %, underscoring its ability to deliver both growth and cash generation.

Revenue Momentum and Subscriber Growth

Xero’s operating revenue rose 20 % year-on-year to NZD1,194 million (18 % in constant currency). The growth was driven by a 10 % increase in total subscribers to 4.59 million (from 4.186 million a year earlier) and a 15 % rise in average revenue per user (ARPU) to NZD 49.63. Annualised monthly recurring revenue reached NZD 2.733 billion, up 26 % (19 % in constant currency).
In the Australia & New Zealand region, revenue climbed 17 % (17 % in constant currency) to NZD 663.7 million, with ARPU up 12 % to NZD 46.39 and subscriber count at 2.7 million. International markets saw revenue up 24 % (19 % in constant currency) to NZD 530.5 million, ARPU up 19 % to NZD 54.08, and a subscriber base of 1.9 million.

Profit, Cash Flow and “Rule of 40” Outcome

Adjusted EBITDA rose 12 % to NZD 350.9 million, while overall EBITDA reached NZD377.9 million. Free cash flow came in at NZD 321.1 million, up 54 % from the prior period, and the free cash flow margin expanded to 26.9 % (up from 21.0 %). The company’s “Rule of 40” metric—which combines revenue growth and free cash flow margin—finished at 44.5 %, above the 40 % benchmark often used to assess SaaS companies. Operating expense to revenue ratio (excluding the impact of the acquisition of Melio) stood at 72.8 %, while including transaction costs it was 77.0 %.

Strategic Highlights and Outlook

Xero closed the early acquisition of Melio in mid-October 2025, enhancing its capabilities in accounts payable workflows and U.S. payments. Underlying revenue for Melio rose 68 % in the six months through to 30 September. On the technology front, Xero continued rolling out its AI-financial superagent “JAX” which incorporates multiple AI agents, automated bank reconciliation, advanced insights and conversational interfaces.
For the full FY26, Xero expects its operating expense to revenue ratio to be around 70.5 % (a slight improvement from prior guidance of 71.5 %). The company anticipates the ratio will be lower in H2 than in H1.

Xero shares were trading lower on the day, with the share price at AUD 131.61 per share as of 13 November 2025.