Investor presentation may_2013_-_external_v2


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Investor presentation may_2013_-_external_v2

  1. 1. Beautiful accounting softwareInvestor BriefingXero Limited28 May 2013
  2. 2. Important noticeThis presentation is given on behalf of Xero Limited (Company number NZ 1830488, AU ARBN160661183).Information in this presentation:• is for general information purposes only, and is not an offer or invitation for subscription orpurchase of, or recommendation of, securities in Xero Limited;• should be read in conjunction with, and is subject to, Xero’s Annual Report, market releases, andinformation published on Xero’s website;• includes forward-looking statements about Xero and the environment in which Xero operates,which are subject to uncertainties and contingencies outside of Xero’s control – Xero’s actualresults or performance may differ materially from these statements;• includes statements relating to past performance, which should not be regarded as a reliableindicator of future performance; and• may contain information from third parties believed to be reliable; however, no representationsor warranties are made as to the accuracy or completeness of such information.All information in this presentation is current at the date of this presentation, unless otherwisestated.All currency amounts are in NZ dollars unless stated otherwise.2
  3. 3. 1. Business overview2. Full year results3. Market observations4. Growth strategy5. QuestionsContents3
  4. 4. 1. Business overview4
  5. 5. Small business. Massive opportunity.5Cloud aggregates and disrupts a large fragmented market• Multi-billion dollar market.• Accounting is foundation application.• Cloud changes the economics.• Desktop incumbents are not internet companies.Xero• Beautiful cloud accounting making business enjoyable.• Integrates small business with their customers, banks, payment services, tax authorities and accountants.• Monthly subscription model.• Powerful ecosystem of partners and add-on cloud solutions.Competitive strengths• Best team, best funding, best architecture and five year head start.• Disrupted incumbents with integrated client and accountants platform.• No compromise, no legacy and unencumbered internet approach.• Proven vision, strategy, platform and execution.
  6. 6. XeroVision Mission Goal6Leading small business cloud platformMillions of people all over theworld love doing business on XeroGrow prosperity by connectingpeople through beautifullydesigned business softwareAchieving scale and value bywinning one million+ customers>500msmall businessesXero+PracticeStudioAdd-OnsModernPracticeFinancial Data & DocumentsXeroplatform
  7. 7. 2. Full year results7
  8. 8. 2013 Highlights102%Revenue growth Customers157,000Staff382Accounting partners Service availability Cash to invest Share price increase6000 99.97%99.998% (CY 2013)$78m 274%8
  9. 9. Growth continues9March year end 2007 2008 2009 2010 2011 2012 2013Customers 204 950 6,000 17,000 36,000 78,000 157,000Revenue ($000’s) 24 134 959 3,158 9,341 19,370 39,033Regional growth to year ended 31 March 2013+56% +219% +100% +100%New Zealand Australia United Kingdom United States +Rest of the World201320122011
  10. 10. Continuing 100% revenue growth010,000,00020,000,00030,000,00040,000,0002008 2009 2010 2011 2012 2013Revenue Loss10
  11. 11. Performance highlights12 months toMarch 201312 months toMarch 2012IncreaseOperating revenue 39,033 19,370 102%Total revenue & grant income 39,969 19,771 102%Operating expenses* (51,407) (26,491) 94%EBITDA (11,438) (6,720) 70%Net loss after tax (14,443) (7,904) 83%Cash & cash equivalents 78,224 38,976 -Paying business customers 157,000 78,000 101%Annualized committed monthly revenue 51.5m 25.5m 102%11* excluding depreciation and amortisation
  12. 12. Outlook for FY14Xero is delivering on its plans and with substantial cash resources will continue its growthagenda to create long term shareholder value by building a global Software as a Service (SaaS)company.The company’s focus this coming year is on scalability as we drive expansion in the UnitedStates, the United Kingdom and Australia to take advantage of the leadership position we areearning. Therefore losses can be expected to continue for the year ending March 31, 2014.Xero anticipated the substantial opportunity as small businesses move to the cloud. We haveshown it takes a significant investment and many years to build a broad and global smallbusiness financial platform.Xero is a unique opportunity, addressing a vast market undergoing massive technologicaldisruption. We believe we’re well positioned at the beginning of a massive market shift.12
  13. 13. 3. Market observations13
  14. 14. Technology shift to a new trillion dollar marketSource: Matrix Analysis, Bloomberg, CapitalIQ, Compustat$0$200$400$600$800$1,000$1,2001987 2004$1,066$39 $36$146MrktcapitalizationUS$BMainframe Client/Server$0$200$400$600$800$1,000$1,2002004 2012$70$3$1,061$1,066MarketcapitalizationUS$BClient/Server SaaSMainframe was taken over byclient/serverAnd client/server will suffer asa result of SaaS14Historical Market Leaders mainframe: Apollo, Burroughs,California, Computer Products, Computer Applications, ComputerSciences, Control Data, Data General, Digital Equipment, IBM, Primecomputers, Sperry Rand, Wang. Analysis allocates IBM market cap byrelevant revenues, as the company was largely able to pivot out of themainframe industry.Historical Market Leaders client server: Alcatel Lucent, CompaqComputer, Cisco, Dell, Gateway, Hewlett Packard, IBM, Intel,Microsoft, Oracle, PeopleSoft, Sun Microsystems, Silicon GraphicsRepeatingtech cycleSaaS predicted toexceed US$ 1 trillion
  15. 15. Cloud segmentationSmall businessDirectOnlineComplexMonetization:Sales model:Complexity:EnterpriseDirectEnterpriseComplexConsumer15Peaked ? MaturingEmergingNon directOnlineSimple
  16. 16. Incumbents - MYOB, Sage, IntuitSoftware companies, not internet companies,struggling with cloud transition.Legacy comprises cloud offerings.Online revenue insignificant to date.Traditional approach to partnering.Start-upsStart-ups don’t have resources tocompete long term.Building features/applications notplatforms.High barrier to entry as market requiresboth client and accountant solutions.Ecosystem participant.Expected competitors havenot emerged, no one else significantly funded.Innovation rapidly redefining the market.Formidable combination of nimbleness,capability and execution.Open platform creator.Market observations16
  17. 17. MYOB (Australasia)On MYOB. “Well, I think it comes down to what the nextgeneration of customers want. I don’t think syncingproduct will give it to them”.— Brad SmithIntuit CEO“Calling this ‘2nd generation cloud’ is like callingregular postage ‘2nd generation email’. Sure, today’smail systems are far more ‘electronic’ and takeadvantage of the internet and other connectivityadvances to improve processes and add services. Butemail it ain’t!”— Dewings Adelaide• NZ and AU markets only.• Purchased by Bain fund for AU$1.3b (800 staff).• Focus on returns to a few, not customers orpartners.• AccountRight Live launched October 2012 withmany challenges:• ‘Cloud wash’ - not a SaaS cloud solution• Customer reception poor.• Completed AU$150m of subordinate debt issue torelease capital to Bain and swap debt.• Banklink acquisition in May 2013 (adding a furtherAUD $60m of debt) possible justification to bolsterrevenue and meet cash-flow covenants.“...initial reaction to MYOB’s latest products (the purecloud LiveAccounts and the cloud/desktop hybridAccountRight Live) was disappointing..”— James ScollayGM MYOB April 201317Huge debt with revenue challenges
  18. 18. “Cloud is characterised by a land grab at presentand Sage is, in our view, ceding territory.Fundamentally, if Sage cannot win in this market inits strongest territory (the UK) we think it willstruggle even more elsewhere.”— Numis Securities Ltd19 April 2013Sage (UK & global)“Sage has over 3.7m customers off support and islate to the cloud with a fragmented offering...”— Numis Securities Ltd5 November 2012Encumbered by a legacy business model and fragmented desktop solutions18• Thirty months since the launch of SageOne in theUK.• "Find a SageOne Accountant" online directory stillonly reports a total of 75 practices having adoptedSages cloud accounting solution, out of a total ofmore than 20,000 accounting practices in the UK.• Only 11,500 customers worldwide have adopted thesolution
  19. 19. Intuit (US & global)"I admire them. I think Rod Drury and the teamhave built a really good company, they have builta very easy and compelling product. Wevelearned some things from Xero that are helping usthink differently, which is the highest complimentyou can pay to someone who competes in yourspace"— Brad SmithIntuit CEODecember 2012SMB market is big and growing• 29m SMBs in US• 7m targeted for quickbooks• 15 million with no solution today• 11 Million with a payroll need• 500m SMBs globally— Intuit investor daySeptember 201219Driving cloud adoption across their customer base• Focussed growing addressable market for smallbusiness accounting.• Robust strategy.• 10m+ customers leave Intuit annually (Quickbooksand Turbo Tax).• US market ready to adopt cloud now.• Encouraging Quickbooks desktop users to migrateto a cloud solution, increasing churn.• Xero now recognized as #1 global cloud challengerin US market and positioned to take market share.
  20. 20. 4. Growth strategy20
  21. 21. SaaS growthCourtesy  of  David  Skok,  Matrix  Partners*  The  growth• SaaS  revenue  comes  over  an  extended  period  of  .me.• Low  churn  in  customers  =  long  term  revenue.• SaaS  businesses  face  significant  losses  in  the  early  years.• SaaS  requires  heavy  upfront  investment  to  acquire  customers.• The  faster  the  business  decides  to  grow,  the  worse  the  losses  may  become.  • Many  investors  have  a  problem  understanding  this,  and  want  to  hit  the  brakes  at  precisely  the  moment  when  they  should  be  hiEng  the  accelerator.*Matrix Partners is a different company to major Xero shareholder Matrix Capital21
  22. 22. Aspirational cloud business modelsReference “Salesforce Dreamforce Analyst Day” September 201222
  23. 23. Comparative revenue growth ratessfdcwdayXerons0 2 4 6 8 10 1242238554YearsYrs to $20m Yrs to $100m Years to $1b31% (US$6.5b)102% (US$1.2b)104% (US$10.5b)35% (US$24.8b)% current growth rate YoY (USD valuation May 2013)23
  24. 24. ProductDisrupt category withinnovation.Additional services.Xero growth driversChannel & NetworkBuilding presence,ecosystem & advocates inchosen markets. GTMmodel for scale.CustomerDelight customers todrive networkeffects.Business ModelHigh margin,scalable SaaSmodel.24
  25. 25. Online accounting journeysmall businessplatformonlinemulti-useranywhereanytimebank feedspaymentsmobileElectronic DataInterchange (EDI)payment graphconnectedsmartbenchmarkingleads and opportunitiesgroup buyingbusiness networknotificationsinvoicing portal25
  26. 26. Xero+PracticeStudioAdd-OnsModernPracticeFinancial Data & DocumentsPractice StudioIntegrated accountingtools including:Financial reporting,Practice Management,Workpapers andTax (*NZ, AU)Modern PracticePartnering with Integratedtools for practices in thecloud:Document Management,Office & Emails,Content, andMigration ServicesXeroBeautiful accounting forsmall businesses,anywhere, anytimeGeneral Ledger, Banking,Bills, Purchases,Fixed Assets, ExpenseClaims, Payroll (*AU)Add-onsPre-integratedapplications to drive yourbusiness forward200+ pre-integratedapps including, point ofsale, advanced  inventory,job management, CRM,workforce automationXero platform26
  27. 27. 2009 2010 2011 2012 2013 Goal015778361761,000,000+In the hands of amillion+ customers27
  28. 28. Transforming the accounting industry28
  29. 29. Subscription pricing29
  30. 30. Channel and network effectsBanks &FinancialInstitutionsAdd-onsAccountants& AdvisorsTaxAuthoritiesLargeBusinessesSmallBusinesses30
  31. 31. 2008 2009 2010 2011 2012 2013 2014428228113451451Add-on application growth31200+ pre-integrated applications provide a comprehensive small business ecosystem
  32. 32. Delighted customers32• Education approach proving successful with channeland customers.• Support centered in NZ with satellite offices now in UKand soon in Denver for US payroll, tax and marketspecialists.• Low customer churn - mid to low teens per annum.• CPA Practice Advisor award 5 out of 5 stars forcustomer experience.• Customers emotionally connected to Xero. Word ofmouth amplified by social media.• Customer sentiment and completely opencommunications is polar opposite to incumbents.Xero%–%Accountant%version%Help/support%system%5%out%of%5%stars%%Jan%2013%
  33. 33. The table above illustrates how, based on sample market share in New Zealand, Australia, UK , USA &Rest of the World, how Xero could achieve the goal of one million+ customers.CountryCurrent Xerocustomers (Mar 13)SmallbusinessesCurrent marketshareSample marketshareImplied marketshareNew Zealand 73,000 455,000 16% 120,000 26%Australia 51,000 2,000,000 3% 350,000 18%United Kingdom 22,000 4,300,000 <1% 170,000 4%United States/RoW 11,000 29,000,000 <1% 360,000 1%Total customers 157,000 1,000,000The road to a million+33
  34. 34. US executionXero platformProduct ChannelAccountants & onlineGrowthTeam & customers• Localized product.• Engaged Xero Advisor Panel drivingUS features.• US payroll this year.• Expanding add-on pipeline.• Major cloud alliances (e.g. Harvest,• Practice tools 4.75 stars. QuickbooksOnline score 4.5 stars.• Building accountant channel in CA.Presence in San Francisco and LA.• 430+ active partners.• 2,000+ accounting professionalscompleted Xero training events.• Leading PR mentions in targetchannels.• Strong progress in online search.• Winning the thought leaders. e.g.25,000+ member LinkedIn grouprenamed “Quickbooks & Xero cloudconsultants”.• Year one growth exceeds othercountries for customers and partners.• Over 50% growth from accountantchannel.• Largest private accounting firm in theCalifornia (29th largest in the US) isnow a Gold partner.• Over 10 of top 100 accounting firms inprocess of moving clients to Xer0.• Recruiting exceptional industry talent.34ScheduledUSevents-MayXero%–%Accountant%version%4.75%stars%%Jan%2013%
  35. 35. Accelerated investment for growthOpportunity Investment focusProduct Grow development teams toaccelerate disruption withinnovation on multiple fronts• Deliver full horizontal product• Integrate accounting practice management tools• AU Tax features and US Payroll• Mobile & touch• Driving network effects• Financial documents• Closer links to banks and paymentsChannel & Network Further expansion of the salesteams to expand coverage in allmarkets• Expand our global awareness and channel advocates• Continue with existing channels in NZ• Increase GTM resources in AU and UK• Significant increase in US investment• Continue to expand banking partnershipsCustomer Enhance customer service to drivedelight and create an army ofreferrers• Deep focus on education• Extend support options to drive delight• Grow our customer add-ons partner network• Unleash referral channelBusiness Model Continued investment in businesssystems for scale to managegrowth and build for higher margin•Internal automation so the servers run the business to growefficiency and margin35
  36. 36. Box $1BYammer $1.2b (MSFT)Square $3.2bSuccess Factors $3.4b (SAP)Salesforce $24.8bYelp $1.9bWorkday Inc $10.5bNetsuite $6.5bIntuit 8,500 staff, $17.5bSage 13,500 staff, $6.2bMYOB 800 staff, $1.2bPrivatePublic$1.2bCloud investment landscape (USD)Key competitors36Marketo $0.8bTableau $3.1b
  37. 37. Incredibly well positionedMassive opportunity Strategy Execution“’s just the beginning”>500msmall businessesProduct Channel &NetworkCustomer BusinessModelXeroStrategyGrow business toglobal scaleWall of innovationFocus on customeracquisition & revenueEngineer high marginSaaS model37
  38. 38. Questions38
  39. 39. Appendix: About Xero39
  40. 40. • Approximately 4,700 shareholders (900 new shareholders since Mar 2013)• 89% of investors hold less than 10,000 shares each • 47% of shares held by Directors & staff• 117m shares on issue, average daily trading volume of around 150,000 shares• NZX50, Market cap as at 10 May 2013 $1.5 billion• Secondary listing on ASX completed November 2o12Public company40
  41. 41. CapitalPlacement($000’s)DatePre IPO 2,000 -IPO 15,000 Jul 2007Craig Winkler (MYOB founder) 18,000 May 2009Private placement 5,000 May 2009SPP 6,000 May 2009Valar Ventures (Peter Thiel) 4,000 Oct 2010Valar Ventures, Sam Morgan, SamKnowles & Craig Winkler, Institutions20,000 Feb 2012SPP 15,600 Mar 2012Matrix Capital and Valar Ventures 60,000 Nov 2012Total* 145,60041
  42. 42. Graham ShawNon-Executive Director*Chartered Accountant with 30 years experienceXero BoardRod DruryCEO & Co-founderOne of NZs leading technology entrepreneursSam MorganNon-Executive Director*Founder of Trade Me and member of Fairfax boardCraig WinklerNon-Executive DirectorCo-founder of MYOBSam KnowlesNon-Executive Chairman*25 year career in Management & Financial ServicesCraig ElliottNon-Executive Director*Co-founder and CEO of Pertino Networks42* Independent Director