Xero Swings to 1st Half Profit, Maintains Fiscal Year Costs Forecast — Update

By Stuart Condie

SYDNEY--Xero swung to a first-half profit and maintained its full-year expense target after the cloud-accounting software provider lifted revenue by 21%.

The New Zealand-based company on Thursday reported a net profit of 54.1 million New Zealand dollars (US$32.1 million) for the six months through September, compared with a NZ$16.1 million loss a year earlier.

Revenue rose to NZ$799.5 million, from NZ$658.5 million. Earnings before interest, tax, depreciation and amortization rose 90% to NZ$206.1 million as Xero reduced its operating-expenses-to-operating-revenue ratio to 79.1% from 83.9% a year earlier.

Xero still expects that to fall to about 75% across the whole of fiscal 2024 due to changes that include a previous 15% reduction in workforce.

Xero did not declare a dividend. The average analyst forecast had been for a net profit of NZ$63 million and revenue of NZ$804 million, according to data compiled by FactSet.

Xero said that it would target more revenue growth through a better balance of subscriber volume and mix. First-half revenue grew 21% in Australia and New Zealand, 23% in the U.K., and 9% in North America.

The company plans to remove between 150,000 and 200,000 long-idle lower-value subscriptions, primarily in the U.K. and North America, starting in the first half of fiscal 2025. Doing this in the first half of fiscal 2024 would have lifted average revenue per user by about 3%-5%, Xero said.

Xero also plans to invest in U.S. marketing targeting small businesses with multiple jobs to be done, and accountants and bookkeepers with a focus on client advisory services. Its U.S. and Canada unit heads will report directly to new Chief Revenue Officer Ashley Grech.

"We're sharpening our focus on Xero's key levers of growth. We will continue to balance growth and profitability, while delivering more value to our customers," Chief Executive Sukhinder Singh Cassidy said.

Write to Stuart Condie at stuart.condie@wsj.com

(END) Dow Jones Newswires

November 08, 2023 17:34 ET (22:34 GMT)

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