Xero’s free cash flow increased to $208.7m with a free cash flow margin of 21%, As a result, Xero continued to deliver a greater than rule-of-40 outcome of 43.9%, it said.
The rule of 40 combines revenue growth rate and profit margin to achieve a target of 40% or more. It is a popular metric for software-as-a-service firms such as Xero. Xero chief executive Sukhinder Singh Cassidy laid down the target in 2023, and Xero first achieved it in 2024.
Singh Cassidy said the half-year result reinforced Xero’s ability to deliver on its strategy.
“We have delivered a solid performance across the board this half, including continued strong revenue growth and a greater than rule-of-40 outcome for the second period running.”
On Thursday, Xero said annualised monthly recurring revenue (AMRR) grew by 22% to $2.2 billion.
In 2024, Singh Cassidy announced the cloud accounting company, which is listed on the Australian Securities Exchange (ASX), would focus on micro and small businesses in the next three years as it targets the three largest opportunities in the three largest markets it operates in.
Singh Cassidy said Xero was “executing our strategy with focus and purpose, through disciplined investment aligned to our strategic priorities”, including its “3x3″ strategy.
Xero said its recently announced acquisition of Syft Analytics was an example of using purposeful mergers and acquisitions to accelerate its “win the 3x3″ strategic priority and demonstrated its disciplined approach to capital allocation.
Xero will pay US$70m (around NZ$119m) for Syft. It said Syft would accelerate global insights, advanced reporting and analytics offerings for Xero customers. Australia, NZ In Australia and NZ, Xero reported double-digit revenue growth to $567m.
Arpu in this market increased 12% to $41.34, and Xero had 2.5 million subscribers, with 93,000 subscribers added in the six months to Sept 30.
Xero reported a 25% revenue increase to $428.8 m for its international markets and a 20% Arpu increase to $45.59. Xero said it had 1.7 million subscribers in the United Kingdom, the United States, and the rest of the world.
The removal of idle subscriptions was felt in this market. In the UK, Xero added 49,000 subscribers to reach 1.1 million total subscribers; North America added 12,000 subscribers to hit 365,000 subscribers. Xero added 13,000 subscribers in the rest of the world segment, for a total of 278,000 subscribers.
“The net reduction for the UK, North America and rest of world, including the removal of long idle subscriptions, was 3,000; 57,000 and 7,000 subscribers respectively.”
- additional reporting staff reporter
