Pinned straw:
$XRO reported their FY23 results this morning. The table below from the release show their highlights.
The financials are messy, due to yet more write-downs of acquisition goodwill (Waddle and ... wait for it ... PlanDay). However, looking past the profligacy of the past, on an operating basis the result is strong, with 28% revenue growth, Operating Cash Flow of $390m (up 65%) and FCF of over $100m.
Costs have been well-managed, and we are yet to see the full benefit of the cost reduction effort initiated late in the financial year. The restructuring costs of $35m are also a drag on the financials.
As highlighted above, the operating leverage is now showing through strongly and with disciplined management, we will now start to see $XRO becoming a strong cash generator.
Growth was driven both by new subcribers, price increases and usage, and monthly churn stayed low at 0.9%. Importantly, as the major price rise was in September, with a small one in mid March, there is a strong revnue exit run rate for the year, which sets up FY24 with a good start.
Customer additions were strong in Australia (+15% yoy) and UK (+14% yoy), and were double digits across the board. North America still making steady but slower progress at +13% (competition from Intuit is just too strong).
Jumping on the Investor Call at 10:30 and will report any significant insights over the next day or so.
HIGHLIGHTS FROM RELEASE
CASH FLOW TRENDS
(Note my numbers for FCF are different from their reports, as it looks like we include/exclude different items in getting to FCF.)
Disc: Held IRL (4.8%) and SM (8.3%)
@mikebrisy Thanks for this in depth write up. I have held XRO since the MF Pro days and always knew they could pull many levers to increase revenue and/or margin if they ever need too. The narrative in the media is that tech has been hit hard by inflation and interest rates, and Xero is a classic example of such a growth tech company that was sold off, but look what happens when they decide to make money.
Xero is my biggest holding IRL even though I have sold down multiple times over the last 10 years. It's also a significant holding in Lakehouse Small Company's Fund not that that means so much without Joe these days...