Key Highlights

• Adjusted EBITDA was $757.4 million, up 18%, and free Cash Flow was $554.0 million, up 9%.

• Coverage reported that it lifted US core Revenue by 240% and that the US added 110,000 customers, with the CEO citing pro-forma revenue growth of 50% for the business.

• Management guided to Operating Revenue of $3.62 billion to $3.73 billion and adjusted EBITDA of $860 million to $920 million for FY27, including additional US Brand investment.

• Net profit after tax fell 27% to $167.4 million, which coverage attributed mainly to costs associated with the Melio acquisition.

Why would a software company that has just spent heavily on an Acquisition also announce a large share buyback? In its FY26 result, released on 14 May 2026, Xero (ASX:XRO) reported revenue growth of 31% and a lower statutory profit, then guided to further growth in FY27 alongside a $550 million buyback (the figure as reported; see currency note below) aimed at offsetting dilution from staff share-based compensation. The combination tells investors something about how management is balancing growth in the United States against Shareholder returns.

All figures below are for the year ended 31 March 2026 unless stated.

What the FY26 result showed

Operating revenue was about $2.75 billion, up 31% on FY25. Adjusted EBITDA was $757.4 million, up 18%, and free cash flow was $554.0 million, up 9%. Net profit after tax fell 27% to $167.4 million, which coverage attributed mainly to costs associated with the Melio acquisition. Annualised monthly recurring revenue, a measure of the run-rate of subscription revenue at the period end, rose 37% to about $3.27 billion.

On customers, net additions were 506,000, taking the total to 4.92 million globally. Average revenue per customer rose 23% to $55.44.

The gap between revenue growth of 31% and adjusted EBITDA growth of 18% shows that margins were diluted, at least in part by the acquisition and by investment. That is consistent with management's choice to increase US brand spending.

Why Melio matters

Xero is a cloud accounting platform for small businesses, selling subscriptions in Australia, New Zealand, the United Kingdom and, increasingly, North America. Melio, a US business-payments platform, was acquired during the period. Coverage reported that it lifted US core revenue by 240% and that the US added 110,000 customers, with the CEO citing pro-forma revenue growth of 50% for the business. Pro-forma figures assume the acquisition had been owned for the whole comparison period, so they are not the same as reported results.

The risk is the other side of that coin: payments businesses bring different economics, Credit and Fraud exposures and regulatory obligations from subscription software, and integration is difficult.

FY27 outlook and Capital management

Management guided to operating revenue of $3.62 billion to $3.73 billion and adjusted EBITDA of $860 million to $920 million for FY27, including additional US brand investment. These are forecasts, not results. At the midpoints, revenue growth is about 34% on the FY26 figure, helped by a full year of Melio, while EBITDA growth is lower, again suggesting the Investment phase continues.

The longer-term aspiration is to double group revenue by FY28 relative to FY25 and to deliver "Rule of 40" outcomes, meaning revenue growth rate plus Margin of at least 40%. Aspirations of this kind are not guidance, and they depend on execution in the United States.

The $550 million buyback is designed to offset dilution from share-based compensation. Software companies often pay staff partly in shares, and buying shares back stops the share count creeping up. Investors should not confuse that with a surplus-capital return; the cash cost is real and a portion of free cash flow effectively funds staff remuneration.

Competitive position

In Australia and New Zealand, Xero competes with MYOB and Intuit's QuickBooks, among others, and holds an encouraging position among small businesses and accountants and bookkeepers, who act as important distribution channels. In the United Kingdom it competes with Sage, Intuit and others. In the United States, it is a challenger to Intuit's QuickBooks. These competitive observations are general industry context rather than something drawn from the FY26 announcement.

A significant structural question is artificial intelligence. Generative tools could lower the cost of building accounting software or automate bookkeeping, which might help platform owners if they integrate them and hurt if customers switch.

Material risks

- Execution risk in the US, where the company is investing ahead of revenue and facing entrenched competition.

- Integration of Melio and the different risk profile of payments revenue.

- Margin pressure if brand and technology investment remains elevated.

- Foreign exchange, because revenue is earned across several currencies while the reporting currency is the New Zealand dollar.

- Technology disruption from AI.

- Customer and pricing sensitivity among small businesses, particularly if economic conditions weaken.

What to monitor

The next scheduled event is the first-half FY27 result. Key measures to follow are subscriber and customer additions, average revenue per customer, adjusted EBITDA against the FY27 range, free cash flow, US growth excluding acquisition effects, and the pace at which the buyback is executed. Any change to the Rule of 40 framing or the FY28 revenue-doubling aspiration would also be informative about management's confidence in the US strategy.