13-May-2021:  Xero Full Year Results Presentation for year ending 31-Mar-2021

Plus:  2021 Annual Report

Plus:  FY21 Results Investor Briefing Webcast recording

Highlights for me:

• After passing that inflection point last year and now being profitable, they've generated heaps of cashflow and finished March with:
  • Net cash of $256,585K, i.e. $256.6 million, being more than double the $111.5m they had one year ago.
  • Despite making acquisitions during the year including a reasonably large one (Planday - for a total potential consideration of €183.5 million [NZ$305m] including an earnout payment of up to €27.8 million based on product development and revenue milestones being reached), they remain in a net cash position - with NO NET DEBT!
• Pandemic?  What pandemic - everything that matters has continued to move in the right direction, including:
  • Total Subscribers (see graphic below) up +20% to 2.74m,
  • AMRR +17% to NZ$963.6m,
  • EBITDA +39% to NZ$191.2m
  • EBITDA margin +3.3 pp to 22.5%,
  • free cash flow up +NZ$29.8m to NZ$56.9m,
  • even lower Churn (1.01%),
  • Total Revenue +18% to NZ$848.8m,
  • Gross Margin up to 86%,
  • Net Profit up from NZ$3.336m in FY20 to NZ$19.774m,
  • CAC as a % of revenue down -7.3pp to 36.3%,
  • Total Cash and short-term deposits up +NZ$574.6m to NZ$1.11 billion, and
  • Net Cash up +NZ$145m to NZ$256.6m.

Glossary (Acronyms and Abbreviations):

AMRR = Annualised monthly recurring revenue (AMRR) represents monthly recurring revenue at 31 March, multiplied by 12.

ARPU = Average revenue per user (ARPU) is calculated as AMRR at 31 March divided by subscribers at that time (and divided by 12 to get a monthly view).

Churn = the value of monthly recurring revenue (MRR) from subscribers who leave Xero in a month as a percentage of the total MRR at the start of that month. The percentage provided is the average of the monthly churn for the previous 12 months.

Constant currency comparisons for revenue are based on average exchange rates for the 12 months ended 31 March 2020. Comparisons for ARPU, AMRR and LTV are based on exchange rates at 31 March 2020.

Lifetime value (LTV) is the gross margin expected from a subscriber over the lifetime of that subscriber. This is calculated by taking the average subscriber lifetime (1 divided by churn) multiplied by ARPU, multiplied by the gross margin percentage. Group LTV is calculated as the sum of the individual segment LTVs, multiplied by their respective segment subscribers, divided by total Group subscribers.

CAC months:  Customer Acquisition Cost (CAC) months are months of ARPU to recover the cost of acquiring each new subscriber. The calculation is sales and marketing costs for the year excluding the capitalisation and amortisation of commissions paid to sales people, less conference revenue (such as Xerocon), divided by gross new subscribers added during the same period, divided by ARPU.

Liquid resources comprises cash and cash equivalents, short-term deposits including proceeds from convertible notes, and undrawn committed debt facilities.

Free cash flow is defined as cash flows from operating activities less cash flows used for investing activities excluding cash used for acquisitions of, and investments into, businesses and strategic assets.

GAAP = Generally accepted accounting principles.

TAM = Total addressable market.

CAGR = Compound annual growth rate

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Not much there to complain about really.

Love to hear what the number crunchers think about Xero's results. I confess my spreadsheet skills always seem to fall short due to at least one erroneous number when inputting data from my research. (See previous straws/forum posts by others on incorrect debt, shares on offer, MC etc) bottom line I don't trust my DCF calcs. 
I sold the majority of my holding at ~$70 in March last year. 
I assumed the hit to UK SME was likely to be massive and hence the main driver to growth in subscribers was going to get smashed. 
I was probably wrong.

will be interesting to see how market values XRO in light of this result, inflation fears and rotation into "value companies". 
 

xro has one of the most compelling long term growth stories on the ASX. We are about to find out what price that commands when the froth gets blown off. 
disc: 2.5% holding. (Was 12%)

I know- I also sold out of Afterpay at $27. Genius. 
but held on to Appen. Double genius. 

The more I look into Xero the more conviction I gain, At first glance most will assume this is just an online accounting company. So what is the market missing? Xero has taken notice of the importance/rise of predictive insights/machine learning (2 huge macro trends-data analytics and AI), They are moving into these areas make no mistake. This is exactly what great companies do they adapt and innovate so they're always current and forward looking. People viewing this stock from a P/E stance are grossly missing the big picture and will probably never be able to buy it under their criteria, It's Eps only went positive last year (2020) and I believe it has a long road map with a lot of growth left and the best may yet to be seen. If Xero can successfully transition into the data/AI landscape it will be a game changer and the amount of value it will offer it's users will make it very difficult for them to stop using their services (which is already a reality). I can quite easily see this company being worth north of 200B~ within 5 Years if it's able to execute.

Xero has announced the acquisition in Planday -- a workforce management platform (that allows small businesses to manage payroll, staffing levels, leave etc) -- in a deal worth EU155.7m plus a further EU27.8m in earnouts if certain targets are met (AUD$240m, plus AUD43m in earnouts). It has around 350,000 users.

It's all about broadening the small business offering. It will allow Planday to be cross-sold to existing Xero users, and expand it outside of Europe and the UK.

In theory, it should also bind Xero's offering tighter into customer's processes, and thereby increase retention and pricing power. Planday has been an ecosystem partner with Xero since 2019, so it's already integrated and you'd imagine Xero has some good insight into its popularity with users.

45% of the deal will be paid in shares (roughy $1m new shares, next to 146.7m outstanding), the rest in cash.

I really like xero. Actually bought a lot of shares years ago at ~$12 and thought i was a genius when i sold out at ~$20.. Not sure how many times i'm going to make the mistake of being too fussy and too conservative on price for high-quality, fast-growing businesses with long runways..

But maybe i'm still making that mistake with Xero right now. I just find it very hard to get past some of the multiples. A 24x price to sales, and a 320x PE, for a $17b+ company, just seems waaaay up there. 

WELLINGTON, 4 March 2021 – Xero Limited (ASX:XRO) today announces the acquisition of Planday, a leading workforce management platform with more than 350,000 employee users across Europe and the UK that simplifies employee scheduling, allowing businesses to forecast and manage their labour costs.

Aligned with Xero’s strategic priority to grow the small business platform, the acquisition of Planday will help more small businesses save time, save money, deal with increasing compliance requirements, support more flexible forms of work, and look after their people.

Planday is an open platform that integrates with Xero, other accounting solutions andthird-party workforce-related apps, to deliver a real-time view of staffing needs and payroll costs, alongside key business performance metrics. When combined with an accounting solution, such as Xero, Planday is able to provide insights to a business or its advisor that help them to adjust staffing levels to match trading conditions and control labour costs, which areoften an employer’s largest expense.

Planday’s cloud-based technology offers significant flexibility and self-service functionality through a mobile app. Employers and employees can communicate easily, collaborate on scheduling, track time and attendance, manage payroll, vacation, absence, and other labourrelated compliance needs.

Following the acquisition, Planday will expand its presence into other markets where Xero operates, supporting Xero’s long-term growth plans.

With an upfront payment of €155.7 million and a subsequent earnout payment of up to €27.8million based on product development and revenue milestones, the total potential consideration for the acquisition of Planday is €183.5 million. Approximately 45% of the upfront consideration will be payable in shares in Xero Limited and 55% will be settled incash. Up to 50% of the earnout payment will be settled in Xero Limited shares with theremainder being paid in cash.

Completion of the transaction is expected in Q1 of Xero’s financial year ending 31 March 2022(FY22) and is subject to the satisfaction of closing conditions. The acquisition is expected to contribute approximately three percentage points of additional operating revenue growth for Xero in FY22. Transaction, integration and operating costs are anticipated to have a modest negative impact on Xero’s FY22 EBITDA.

Probably not a bad long term entry around $116~, in the future it's hard to imagine this not being much higher. Looking at the markets now I see a lot of opportunity to actually build a quality core portfolio on the ASX. Stocks like APX,XRO,ALU,CSL are all on quite large discounts if you ask me and people will probably look back on these prices wishing they bought more.

From December 21, 2020, XRO will enter the S&P ASX50 index, as will Afterpay (APT).  OSH & VCX are the two stocks moving out to make room for XRO and APT in the ASX50.

APT is also entering the ASX20 index (replacing IAG), which is a MAJOR milestone!  

Other index inclusions and removals:

ASX100:  In: IEL, MIN, REH.  Out: ILU, FLT, NHF.

ASX200:  In: KGN, REH.   Out: AVH, COE, WSA

ASX All Technology Index:  In: 3DP, 4DX, BID, DTC, FDV, FZO, HTG, LBY, MMM, OTW, TNT, WBT, YOJ.  Out: RAP.

All of these changes will occur prior to trading on Monday December 21st, 2020.  See here.

I really, really like this business.

If anyone has ever used Xero, they would understand that it is such a good piece of software and is far superior to competitors, such as MYOB...

Super expensive on first analysis, but it seems to have always been this way. It is priced to perfection and it seems really difficult to get invovled because of how xero is interpreted by the market and subsequently priced accordingly to growth forecasts.

Either way, future ROE is likely to be 20%+ in the coming years and with a superior product within the "accounting software" industry, Xero is well worth keeping an eye on.