Accounting solutions provider
This drove a significant increase in free cash flow to $102.3 million, which reflects a free cash flow margin of 7.3% compared to 0.2% in FY22.
The company further elaborated that operating revenue increased to $1.4 billion, which reflects ongoing subscriber growth and average revenue per user (ARPU) improvement. Annualized monthly recurring revenue grew by 26% to $1.55 billion (23% in constant currency terms). Total LTV, which grew 23% (21% in constant currency) to $13.4 billion, was driven by double digit subscriber growth across all regions — as average monthly churn (0.90%) remained low and ARPU improved a further 10% (8% in CC).
Xero's operating expense to operating revenue ratio for FY23 was 80.7% (excluding restructuring costs of $34.7 million), in line with guidance.
Product design and development expenses increased by 32% to $490.0 million, up slightly as a proportion of operating revenue to 35.0%. This spending has delivered a number of product updates and new features for customers. This included practice tools updates to unify client data across Xero Practice Manager, Xero HQ and Xero Tax; launching Xero Go in the U.K. to meet the less complex needs of self-employed businesses and their advisors; a partnership in the U.S. with cloud-based tax compliance automation provider Avalara to build an integration that automates sales tax compliance from within Xero; updates to Xero Payroll in Australia to help customers manage compliance for the Single Touch Payroll Phase 2 transition; and South African rand billing to help customers and partners to consistently plan for subscription costs in their local currency.
"Xero's strong underlying operating result is underpinned by continued revenue momentum from both subscriber and ARPU growth" said Xero CEO Sukhinder Singh Cassidy in a statement. "Our FY23 performance demonstrates Xero's resilience to the macroeconomic conditions of the past year, and the value we provided to small business customers in a challenging environment. We remain well positioned to take advantage of the significant long-term opportunity for cloud accounting and our small business platform as we prioritize disciplined, customer-focused growth."
In North America, Xero added 30,000 subscribers in the second half of FY23, in line with the second half of FY22 and with guidance. In FY23, Xero added 45,000 net subscriber additions in North America to reach a total of 384,000 subscribers.
