Xero (XRO) H1 2026 earnings summary

Executive summary

• Achieved strong H1 FY26 results with 20% year-over-year revenue growth to $1.19 billion, robust free cash flow, and a Rule of 40 outcome at 44.5%, driven by disciplined capital allocation and execution of strategic priorities.

• Completed the Melio acquisition, accelerating US scale, bill pay integration, and product expansion, with rollout planned for December 2025.

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

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

Financial highlights

• Operating revenue grew 20% year-over-year to $1,194 million (18% in constant currency); adjusted EBITDA up 12% to $351 million; EBITDA up 21% to $378 million.

• Free cash flow increased 54% to $321 million, with margin expanding to 26.9%.

• Net profit after tax rose 42% to $135 million; basic EPS increased to $0.84.

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

• ARPU increased 15% to $49.63; annualised monthly recurring revenue up 26% to $2.73 billion.

Outlook and guidance

• FY26 operating expense to revenue ratio expected at around 70.5%, improved from previous guidance, with further efficiency gains and Melio integration.

• Ratio expected to be lower in H2 FY26 versus H1 FY26, with revenue expected to be higher in H2 following typical seasonality.

• Combined business aims to more than double FY25 group revenue by FY28, targeting Rule of 40+ outcomes.

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