Release Date: May 14, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Xero Ltd OTCM:XROLF reported a strong revenue growth of 31% for FY26, reaching $2.75 billion.
- The company added over 500,000 new customers, bringing the total to 4.92 million.
- Adjusted EBITDA increased by 18% to $757 million, showcasing strong profitability.
- The U.S. market showed significant acceleration with a 30% organic growth rate.
- Xero Ltd (OTCM:XROLF) is leveraging AI and payments innovation to deepen customer penetration and enhance value.
Negative Points
- Despite strong growth, the company fell below the Rule of 40 on a pro forma basis due to the Melio acquisition.
- The integration of Melio led to a 5.1 percentage point reduction in gross margin to 83.9%.
- The company faces challenges in maintaining customer retention as direct channel customers churn at higher rates.
- Operating expenses remain high, with a significant portion attributed to Melio's higher G&A base.
- The effective tax rate was elevated at 51% due to Melio's losses, impacting overall profitability.
Q & A Highlights
Q: Can you clarify the new guidance for free cash flow and Rule of 40 for FY27 and FY28?
A: Claire Bramley, CFO: We are pleased with our FY26 execution, achieving a pro forma Rule of 40 result of 36%, up from 32.9% in FY25. Our FY27 guidance shows a clear path to exceeding the Rule of 40 by FY28, with continued improvement expected as we execute our strategy.
Q: How does the Claude partnership impact Xero's product and distribution strategy?
A: Sukhinder Cassidy, CEO: The Claude partnership offers upstream distribution opportunities, allowing us to be where our customers are. The MCP Connector is a step towards deeper integrations, complementing our Xero Force initiative, which enables customers to build custom agents on Xero. We aim to be present wherever customers choose to interact.
Q: What is the expected impact of AI monetization on FY27 revenue guidance?
A: Sukhinder Cassidy, CEO: AI monetization will have a small impact on FY27 revenue. Our focus is on delivering core value through AI, balancing bundling and a la carte options. We are preparing for various pricing models, including consumption-based pricing for high-value features.
Q: Can you provide insights into the growth of payments revenue and its future trajectory?
A: Claire Bramley, CFO: Payments revenue grew 58% year-over-year in FY26, with strong momentum across the board. We see multiple levers for growth, including optimizing customer acquisition and take rates. The Melio integration is performing as expected, and we are excited about the momentum heading into FY27.
Q: How is the U.S. market performing, and what are the key growth initiatives?
A: Sukhinder Cassidy, CEO: The U.S. market is showing strong momentum, with organic revenue growth accelerating. We are investing in brand awareness and leveraging our integrated GTM teams to drive growth. Our focus is on executing our strategy and delivering on the promise of our offerings.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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