Cloud accounting firm Xero posts NZ$69m full-year loss

Although Xero's operating cash flow turned positive for the first time during the second half of FY2017, the cloud accounting firm is still in the red by NZ$69.1 million.
Written by Asha Barbaschow, Contributor

Cloud accounting firm Xero has announced its results for the 2017 financial year, reporting an after-tax loss of NZ$69.1 million, up from the NZ$82.5 million loss reported a year prior.

Operating cash flow turned positive for the first time during the second half, coming in at NZ$9 million. Full-year operating cash outflow was reduced to NZ$4.4 million, from NZ$34.8 million in FY16.

Earnings before interest, tax, depreciation, and amortisation (EBITDA) was still in the red by NZ$28.6 million; however, this was a NZ$31.1 million improvement from last financial year's NZ$59.9 million EBITDA loss.

The New Zealand Stock Exchange and Australian Securities Exchange-listed company, headquartered in Wellington, reported 43 percent growth year on year in operating revenue to NZ$295.4 million.

In delivering his company's results, CEO and founder Rod Drury told shareholders that Xero is now focused on its journey toward NZ$1 billion in revenue, and beyond.

"Over the past decade, Xero has become much more than just a transformational cloud accounting platform -- it is also a major driver of economic activity for small businesses," he said.

Drury said Xero boasts the title as the largest cloud accounting software provider outside of the United States, surpassing the 1 million global subscriber milestone in March.

During the financial year, Xero said it expanded Australia and New Zealand cloud accounting market leadership, with 692,000 subscribers across the region, adding 194,000 subscribers in FY17.

In the United Kingdom, Xero grew to 212,000 subscribers in FY17, adding 79,000 subscribers over the year, while the company's presence in North America grew to 92,000 subscribers, adding 30,000 in FY17.

Xero finished the year on a total of 1,035,000 subscribers.

While Drury said surpassing 1 million subscribers puts his company in a comfortable position, he said Xero is "just getting started".

"Five and a half years ago, at 50,000 subscribers, we asked shareholders to imagine our business at a million subscribers," he said. "We invested for the long term to build a business and ecosystem to achieve those numbers. It's very satisfying to deliver on that promise."

During the year, Xero partnered with banks across Asia, including CIMB in Malaysia, HSBC in Hong Kong, and UOB in Singapore.

Also announced on Thursday was the partnership between Xero and Capital One, adding to partnerships with Wells Fargo and Silicon Valley Bank.

In delivering the full-year results, Drury said it was the early investment Xero made in building a scalable SaaS company that enabled his company to manage so many customers -- and keep them happy.

Xero completed its migration to Amazon Web Services (AWS) in November, leaving its legacy environment and relationship with Rackspace behind, a move Drury told ZDNet he was glad to make.

In the last 12 months, Xero has processed more than NZ$1.2 trillion in global economic activity, with Drury explaining previously that it gives his company a unique and high-value dataset to drive insights and machine learning.

On machine learning, Xero announced an automation system earlier this year, touted to transform the accounting practices of small businesses and their partners, and expected to save small business customers a working month every day for each second it shaves off the average edit time.

"Recording more than NZ$1.4 trillion worth of incoming and outgoing transactions in the last year, Xero manages a unique global graph of business transactions, enabling the development of machine learning to create new experiences for small businesses," Drury said on Thursday.

"We believe the application of machine learning and AI to accounting will unlock significant productivity for our accountants, bookkeepers, and small business customers."

During the 2017 financial year, Xero made a string of new platform integration announcements, including a partnership with Macquarie Bank's DEFT payments system and integrated EFTPOS provider Tyro that will see the cloud accounting firm integrate with electronic bill payment system BPAY.

Xero also added a PayPal Express Checkout option to its software, allowing for an invoice created via Xero to be paid through PayPal directly from the invoice.

The company also partnered with payments company Stripe in December to allow its small business users to view and pay an invoice using Apple Pay.

"We are making progress in rewiring how businesses work together with more bank feeds, large enterprises connecting to their customers with Xero, and more than 20 million unique connections doing business on our platform," Drury added.

For the first half of the 2017 financial year, Xero reported a net loss after tax of NZ$43.9 million, off the back of a 48 percent year-on-year increase in revenue to NZ$137 million.

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