Xero (XRO) H1 2026 earnings summary

Executive summary

• Achieved strong H1 FY26 results with 20% year-over-year revenue growth to $1.19b and robust free cash flow, driven by disciplined capital allocation and execution of strategic priorities.

• Completed Melio acquisition, expanding US scale and payments capabilities, and accelerating growth opportunities.

• Continued investment in AI and product innovation, including the rollout of JAX, enhanced analytics, and embedded payroll with Gusto.

• Subscriber base grew 10% year-over-year to 4.6 million, with international markets contributing 54% of net new additions.

• Maintained performance above the Rule of 40 at 44.5%.

Financial highlights

• Operating revenue grew 20% year-over-year to $1,194m (18% in constant currency); subscription revenue up 18%, other operating revenue up 44%.

• Adjusted EBITDA rose 12% to $351m; adjusted EBITDA margin at 29.4%.

• Free cash flow increased 54% to $321m, with a margin of 26.9%.

• Net profit after tax grew 42% to $135m; basic EPS rose to $0.84 from $0.62.

• Gross profit margin was 88.5%, slightly down due to continued investment in customer experience.

Outlook and guidance

• FY26 operating expense to revenue ratio expected to be around 70.5%, improved from previous guidance.

• Ratio expected to be lower in H2 FY26 versus H1 FY26, with Melio integration providing additional efficiencies.

• Combined business expected to more than double FY25 group revenue by FY28, with Rule of 40 outcomes anticipated to exceed 40% at group level.

• Short-term headwinds from increased interest costs and non-cash amortization due to Melio acquisition.

• Seasonality expected to drive higher H2 revenue.