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Xero delivers more strong revenue and customer growth

The Xero Limited (ASX: XRO) share price will be one to watch on Thursday following the release of its half year results.

How did Xero perform in the first half?

Xero was a strong performer once again during the first half of FY 2020.

For the six months ended September 30, Xero reported a 32% increase in operating revenue to NZ$338.7 million.

Also growing strongly was its annualised monthly recurring revenue (AMRR). At the end of the period this had increased 30% on the prior corresponding period to NZ$764.1 million.

A key driver of this growth was another strong increase in subscriber numbers. Total subscribers grew 30% over the prior corresponding period to 2.057 million.

Management notes that it took over a decade to reach one million subscribers, but just two and a half years for the second million. It believes this demonstrates the pace of Xero’s adoption across a number of markets.

In Australia subscribers grew 28% to 840,000, in the UK they lifted 51% to 536,000, in New Zealand they increased 13% to 367,000, in North America they were up 21% to 215,000, and finally, the Rest of World segment saw a 52% increase to 99,000.

This strong growth led to Xero’s total subscriber lifetime value increasing 37% to NZ$5.4 billion. More than NZ$1 billion of value was added during the half.

Earnings growth and positive free cash flow.

EBITDA excluding impairments came in at NZ$65.9 million, which was more than double the NZ$34.5 million it posted a year earlier. On the bottom line, net profit after tax increased by a sizeable NZ$29.9 million to NZ$1.3 million.

Pleasingly, the company delivered positive free cash flow. That came in at NZ$4.8 million, compared to free cash outflow of NZ$9.8 million a year earlier.

Xero’s CEO, Steve Vamos, appeared to be pleased with the half.

He said: “We’ve continued to perform well this half with strong topline results and improving financial performance. Exceeding two million subscribers globally and achieving AMRR of over three quarters of a billion dollars were important milestones.”

“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,” he added.

Outlook.

Xero elected not to provide any real guidance for the full year.

But it “will continue to focus on growing its global small business platform and maintain a preference for reinvesting cash generated, subject to investment criteria and market conditions, to drive long-term shareholder value.”

Free cash flow in FY 2020 is expected to be a similar proportion of total operating revenue to that reported in FY 2019.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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