Xero (XRO) Investor update summary

AI strategy, opportunity, and product innovation

• A differentiated AI strategy leverages proprietary data, financial expertise, and workflow automation to deliver actionable insights and significant value for small businesses and accountants.

• Over 2 million subscribers benefit from AI features, with rapid adoption of GenAI capabilities and new launches such as benchmarking, invoice generation, and financial insights.

• AI features save small businesses an average of 22 hours per month and resolve over 97% of help sessions without support tickets.

• Monetization focuses on bundled features, add-ons, and usage-based pricing to align with delivered value, simplicity, and future-proofing.

• FY27 goals include driving AI adoption, deepening product value, and monetizing in line with these principles.

U.S. payments opportunity, Melio integration, and US growth

• The U.S. SMB payments market is large and under-digitized, with Melio addressing friction in accounts payable through AI-powered, flexible, and self-serve workflows.

• Melio’s integration with Xero enables seamless bill pay, cash flow management, and real-time visibility, with embedded Melio Bill Pay and unified GTM teams.

• Melio offers multiple payment methods, including ACH, credit card, BNPL, and international payments, focusing on choice, flexibility, and cash flow optimization.

• Combined platform drives higher ARPU, gross profit per customer, and a powerful growth flywheel, with payments ARPU growing from ~$30 to ~$200 over 36 months.

• Integration is progressing well, with strong customer feedback, consolidated systems, and ongoing improvements in product and customer experience.

Financial outlook, guidance, and disclosure updates

• The business is focused on expanding TPV, optimizing take rate, and scaling both direct and syndication channels, with strong partnerships.

• Melio is expected to reach adjusted EBITDA breakeven on a run-rate basis in H2 FY28, driven by scaling TPV, improving payment mix, and expanding margin.

• FY26 guidance is unchanged: operating expenses are expected to be around 70.5% of revenue, with a lower ratio in H2.

• Xero will transition to providing forward guidance on an adjusted EBITDA basis from FY26 results, replacing the OPEX ratio framework.

• US regional disclosures now separately report direct customers and revenue, incorporating Melio’s direct payment customers.