The Xero Limited (ASX: XRO) share price will be one to watch closely on Thursday.
This follows the release of its highly anticipated full year results for FY 2021.
How did Xero perform in FY 2021?
For the 12 months ended 31 March, Xero reported an 18% increase in revenue to NZ$848.8 million. While this is strong, it falls a touch short of the market consensus estimate of NZ$854 million, which could potentially weigh on the Xero share price today.
Key drivers of this growth were its Australia, UK, and Rest of the World operations. Australian revenue increased 20% to NZ$384 million, UK revenue rose 22% to NZ$224 million, and Rest of the World revenue jumped 27% to NZ$54 million.
In New Zealand, revenue grew 12% to NZ$130 million, whereas North American revenue rose just 2% to NZ$57 million. Management advised that the latter reflects currency headwinds, the loss of revenue from bundling Hubdoc into Xero Business Edition subscriptions, and the absence of any Xerocon-related revenue.
Subscriber growth continues
Xero's overall revenue growth was underpinned by a 20% increase in subscribers to 2.74 million. This comprises a 20% increase in ANZ subscribers to 1.56 million and a 21% increase in International subscribers to 1.18 million. In respect to the latter, there are now 720,000 subscribers in the UK market.
Management advised that COVID-19 impacted Xero's progress in the first six months of FY 2021. However, it bounced back very quickly. So much so, in the second half Xero delivered its strongest ever half year subscriber numbers with 288,000 net additions.
This ultimately led to the company reporting annualised monthly recurring revenue (AMRR) growth of 17% to NZ$963.6 million and total subscriber lifetime value (LTV) growth of 38% to NZ$7.65 billion.
Operating leverage
Things were even more positive for Xero's earnings thanks to the achievement of further operating leverage. The company reported earnings before interest, tax, depreciation and amortisation (EBITDA) of NZ$191.2 million. This was up 39% on the prior corresponding period.
And on the bottom line, net profit came in at NZ$19.8 million, which is an increase of NZ$16.4 million year on year.
Finally, free cash flow for the 12 months was NZ$56.9 million, bringing its total available liquid resources to NZ$1.3 billion.
Management commentary
Xero's CEO, Steve Vamos, said: "As well as responding to our customers' needs during the pandemic, we continued to execute our strategy, with strong revenue and subscriber growth, completion of a significant capital raise, and the acquisitions of Planday, Tickstar and Waddle."
"The past year has brought home to many people in small business the need to understand in real-time their financial position and how it may change. The value and importance our customers place on their subscription and connection to the broader Xero community is increasing."
"Looking ahead we believe small business will be a major driver of economic recovery in a post-pandemic world. Small businesses make up more than 90% of businesses in the markets Xero operates in, and represent a significant contribution to economic activity, jobs, and the community," he concluded.
Outlook
Xero advised that it will continue to focus on growing its global small business platform and maintain its preference for reinvesting cash generated to drive long-term shareholder value. This is subject to investment criteria and market conditions.
Total operating expenses (excluding acquisition integration costs) as a percentage of operating revenue for FY 2022 are expected to be in a range of 80% to 85%, which is consistent with levels seen in the second half of FY 2021 and the pre-pandemic period.
Integration costs, relating to the three acquisitions announced during FY 2021, are expected to increase total operating expenses as a percentage of operating revenue by up to 2% for FY 2022.
