Key Highlights

  • Operating revenue rose 31% to NZ$2,753.1 million, or 28% in constant currency.
  • Annualised monthly Recurring Revenue rose 37% to NZ$3.27 billion, of which 25% was organic growth.
  • Net profit after tax fell 27% to NZ$167.4 million from NZ$227.8 million, with Melio costs the main reason.
  • FY27 guidance is Operating Revenue of NZ$3,620 million to NZ$3,730 million and adjusted EBITDA of NZ$860 million to NZ$920 million.

What does Xero's (ASX:XRO) purchase of Melio change about the business? It adds a US payments platform to an accounting software group, lifts reported revenue sharply and temporarily depresses profit. Xero's FY26 result, released on 14 May 2026 for the year ended 31 March 2026, shows both effects clearly. All figures below are in New Zealand dollars unless stated.

What Xero does and how it earns

Xero provides cloud accounting and Business software to small businesses and their accountants. Revenue is subscription-based, so it is driven by two things: the number of subscribers and the average revenue per customer. Upgrades, price changes, add-on products and, now, payments functionality all feed the second figure.

At 31 March 2026 Xero had 4.92 million customers, up 11%, after adding 506,000 net customers in the year. Average revenue per customer rose 23% to $55.44. Average monthly churn was 1.14%, which management described as below pre-pandemic trends.

The FY26 result

Operating revenue rose 31% to $2,753.1 million, or 28% in constant currency. Annualised monthly recurring revenue rose 37% to $3.27 billion, of which 25% was organic growth. EBITDA was $789.5 million, up 24%, and adjusted EBITDA was $757.4 million, up 18%.

Net profit after tax fell 27% to $167.4 million from $227.8 million. Xero said the fall mainly reflected Melio costs: the year included $50.6 million of Transaction Costs and a $90.5 million foreign-exchange translation gain in other income. Operating Income fell 13% to $316.1 million but would have been broadly flat excluding the Melio costs.

Free Cash Flow rose 9% to $554.0 million. Gross Margin was 83.9%, down 5.1 percentage points, which is consistent with, though not explained by the company in the material reviewed, a payments business earning lower margins than pure software. That link is this article's interpretation.

Chief executive Sukhinder Singh Cassidy credited "disciplined execution and macro-resilience" for the result. Xero also reported a customer lifetime value estimate of $21.0 billion, up 17%, though that is a company-calculated metric that depends on its own assumptions.

Why the US matters

US revenue grew 240%, or about 30% excluding Melio. Pro forma revenue growth, as if Melio had been owned for the whole period, was 50%. Australia and New Zealand revenue rose 18% to $1.4 billion and international revenue rose 47% to $1.4 billion.

The Melio Acquisition closed early, according to Xero's results announcement. The US is a large and competitive market for small business accounting, where Xero faces established rivals such as Intuit's QuickBooks, and the company has been investing to build Brand Awareness there. Its FY27 guidance includes up to about $55 million of incremental US brand spending.

FY27 guidance and targets

These are company expectations, not results. For FY27 Xero guided to operating revenue of $3,620 million to $3,730 million and adjusted EBITDA of $860 million to $920 million, with a higher share of EBITDA expected in the second half. Depreciation and Amortisation are expected to be about $465 million.

Beyond that, Xero aspires to more than double FY25 group revenue of $2,103 million by FY28, excluding revenue synergies, while achieving a Rule of 40 outcome, meaning revenue growth plus margin of more than 40%. The company reported a Rule of 40 score of 48.5% for FY26, or 36.0% on a pro forma basis.

In its home region Xero competes with local providers such as MYOB, but it has a long-established presence there, reflected in the $1.4 billion of regional revenue. Growth there was 18%, so the established markets are still expanding, though the company will need to show that the larger US operation can progress in a similar way.

Capital management and AI

The board authorised share purchases of up to A$550 million in FY27 to offset dilution from share-based compensation. That is a hedge against dilution rather than a reduction in share count, and it uses cash that could otherwise be deployed elsewhere.

Xero also extended its Partnership with Anthropic and expanded generative AI features, including an early-testing AI agent builder called XeroForce. Whether such tools raise revenue per customer, or are competed away, is not yet shown in the reported numbers.

Risks and things to monitor

Integration is the first issue. Combining Melio with Xero's own US operations requires execution on product, sales and brand, while the cost-to-income ratio was 70.5% excluding Melio transaction costs, in line with guidance. Margin and gross margin are worth following as the mix shifts.

Second, competition in small business software and payments is intense, and pricing changes can affect churn. Third, currency matters: Xero reports in New Zealand dollars but earns revenue in several currencies, and the FY26 profit included a sizeable foreign-exchange gain.

Fourth, subscriber growth and pricing need to keep pace, because churn and customer additions drive the subscription model. The 23% rise in revenue per customer in FY26 may include Melio's revenue contribution, which the material reviewed does not break out, so the organic trend, which the company puts at 25% for annualised recurring revenue, is the better gauge of underlying momentum.

Finally, the next scheduled reporting point is the half-year result for the six months to 30 September 2026, which will show how Melio and the US spending are tracking against the full-year guidance. Readers should check the date on Xero's investor calendar.