Xero Limited (ASX:XRO) is expanding beyond cloud accounting into payments and other financial services, with the United States at the centre of that strategy. FY26 delivered higher revenue, customers and recurring Revenue after the Acquisition of Melio, but statutory profit declined as the newly acquired US payments Business remained loss-making and acquisition-related costs increased.

Operating Revenue Rises 31%

Xero reported FY26 Operating Revenue of NZ$2.75 billion, up 31% from the prior year.

Revenue growth remained broad-based across its core markets, while the inclusion of Melio accelerated expansion in payments.

Xero’s organic revenue also continued to increase, indicating that growth was not solely acquisition driven.

The group is now combining accounting, payments, Payroll and other small-business financial tools within a broader platform.

Adjusted EBITDA Increases 18%

Adjusted EBITDA increased to NZ$757.4 million from NZ$641.8 million.

The adjusted EBITDA Margin was 27.5%, down from 30.5% in FY25.

Xero said the reduction largely reflected the inclusion of Melio, which currently generates EBITDA losses.

On an organic basis excluding the acquired business, adjusted EBITDA growth was higher, reflecting Operating Leverage across the existing Xero platform.

Net Profit Falls 27%

Statutory net profit declined to NZ$167.4 million from NZ$227.8 million.

The result was affected by acquisition-related costs, higher financing expenses and the current losses generated by Melio.

Xero disclosed that Melio reduced FY26 net profit by NZ$111.7 million.

Excluding Melio’s contribution, NPAT increased 23% to NZ$279.1 million.

Free Cash Flow Continues to Grow

Free cash flow increased 9% to NZ$554.0 million.

Cash receipts from customers increased 31%, broadly in line with revenue growth.

The continued cash generation provides Xero with capacity to fund product development and US expansion while absorbing near-term Melio losses.

However, the acquisition also moved Xero into a net Debt position and increased financing costs during FY26.

Customer Base Reaches About 4.9 Million

Xero ended FY26 with approximately 4.9 million customers, up 11%.

Growth was recorded across established and international markets.

The larger customer base expands Xero’s opportunity to sell additional services such as payments, payroll and financial tools alongside accounting subscriptions.

Customer growth remains one of the main drivers of annualised recurring revenue.

ARPC Increases to NZ$55.44

Average revenue per customer increased 23% to NZ$55.44 per month.

The headline measure includes Melio.

Excluding Melio, Xero reported ARPC of NZ$51.20.

The organic increase reflected price changes and continued growth in payments revenue.

This distinction is important because part of the headline improvement came from acquired financial-services revenue rather than solely from higher subscription pricing.

Recurring Revenue Reaches NZ$3.27 Billion

Annualised monthly Recurring Revenue increased 37% to NZ$3.27 billion.

Excluding Melio, AMRR increased 25% to NZ$2.99 billion.

The increase was driven by customer growth, higher ARPC, payments expansion and favourable currency movements.

Recurring revenue remains central to Xero’s model because it provides a base for funding continued Investment in products and international expansion.

Melio Extends Xero Into US Payments

Xero acquired Melio to expand its position in US small-business payments.

Melio provides bill-pay technology designed for small and medium-sized businesses and accounting professionals.

Xero has since embedded Melio-powered bill payments directly into its US platform.

The acquisition allows Xero to combine accounting and payment workflows rather than relying solely on subscription accounting revenue.

US Payments Market Becomes a Strategic Focus

Xero is targeting a US small-business payments market it estimates at approximately US$29 billion.

During 2026, it launched online bill payments directly within Xero and subsequently expanded US functionality across expense management and payroll.

The strategy aims to increase customer value by bringing more financial activities onto one platform.

Execution depends on customer adoption and the Economics of scaling payments.

Melio Remains Loss-Making

Melio is not yet profitable on an adjusted EBITDA basis.

Xero expects the business to reach run-rate adjusted EBITDA breakeven during the second half of FY28.

Until then, Melio is expected to reduce group margins while Xero invests in integration, customer acquisition and product development.

The timeline means the US payments strategy should be assessed over several years rather than solely through FY27 earnings.

FY27 Revenue Guidance Points to Further Growth

Xero expects FY27 operating revenue of NZ$3.62 billion to NZ$3.73 billion.

Adjusted EBITDA is expected to range from NZ$860 million to NZ$920 million.

Management expects performance to be more weighted toward the second half than usual.

The guidance incorporates customer growth, ARPC expansion and continued payments growth.

US Brand Investment Increases

FY27 adjusted EBITDA guidance includes up to NZ$55 million of incremental US brand investment.

The spending forms part of a multi-year effort to improve awareness in the US market.

The additional investment highlights the cost of competing in a market where Xero has a smaller installed base than in Australia, New Zealand and the UK.

Capital Management Includes Share Repurchases

Xero has authorised a share repurchase program of up to NZ$550 million.

The program is intended primarily to offset dilution associated with employee share-based compensation rather than materially reduce the overall share count.

This means the capital-management objective differs from a conventional buy-back designed mainly to increase Earnings per share through fewer shares outstanding.

Next Major Update Arrives in November

Xero is scheduled to report its FY27 half-year results on 12 November 2026.

The update should provide the first major financial indication of how Melio is progressing through a full FY27 period.

US payments adoption, customer growth, ARPC, Melio losses and group margins will be important measures of execution.

Key Risks and Areas to Watch

Melio integration remains a central execution risk.

US expansion may require greater Marketing and customer-acquisition spending than currently planned.

Payments also introduce different margin and regulatory characteristics from subscription software.

Competition, customer churn, foreign exchange movements and higher financing costs can affect results.

FY27 revenue growth, adjusted EBITDA, Melio’s loss trajectory and US customer adoption will therefore remain key indicators.