The Xero (ASX: XRO) share price is up around 4% after releasing its FY20 half year report.
Founded in New Zealand in 2006, Xero has become the dominating player in the business and accounting software market in Australia, New Zealand and the UK. Employing more than 2,300 people, Xero helps more than 1.8 million subscribers manage their accounting and tax obligations.
Xero’s Profit Report
Xero reported that operating revenue increased by 32% to NZ$338.6 million in the six months to 30 September 2019 compared to the prior corresponding period.
This revenue growth was driven by a 30% increase of subscriber numbers to 2.06 million with an additional 239,000 subscribers.
Annualised monthly recurring revenue grew by 30% to NZ$764 million.
The gross profit margin percentage continued to improve, it rose 2.4% to 85.2% from 82.8% last year.
EBITDA (click here to learn what EBITDA means) excluding impairments rose by 91% to NZ$65.9 million.
Net profit after tax was a profit of NZ$1.3 million compared to a net loss of NZ$28.5 million last year. Free cash flow was also a positive NZ$4.8 million up from a negative NZ$9.8 million.
Xero was happy to boast that while it took more than a decade to add the first million subscribers, it took just two and a half years to add the next million, which Xero said demonstrates the adoption of its accounting software across a number of markets.
Australian subscribers grew 28% to 840,000, UK subscribers grew 51% to 536,000, New Zealand subscribers grew 13% to 367,000, North American subscribers grew 21% to 215,000 and Rest of World subscribers increased 52% to 99,000.
Xero Management Comments
Xero CEO Steve Vamons said: “We’ve continued to perform well this half with strong topline results and improving financial performance.
“There are a number of significant global trends contributing to Xero’s growth including industry, regulatory and technology shifts. These include the increased use of cloud technology by small businesses, the digitisation of tax and compliance systems, and innovation reshaping the financial services sector.”
Outlook
Xero said it will continue to reinvest in the business to drive shareholder value. Free cash flow in FY20 is expected to be a similar proportion of total operating revenue as FY19.
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