Xero continues towards profit

Cloud accounting software provider Xero has continued its relentless march towards cashflow break-even in its first half result. But the company is not yet talking about when it might achieve bottom-line profit.

Cash-burn on operations (the rate at which a company is spending its capital to finance its overheads) dropped significantly in both absolute and proportional terms in the six months to September 30, allowing the company to double its pre-impairments operating earnings surplus for the half-year from $17.1million to $34.5million.

However, when impairments caused by software development write-offs booked at the time it acquired US payroll solution provider Gusto are included, earnings before interest, tax, depreciation, and amortisation came in at $16.8million, compared with $15.6million in the same half last year.

On a statutory earnings basis, the company's half-year loss rose to $28.6million from $19.6million.

The company says in its statements to the Australian Stock Exchange that "excluding capital outlays for mergers and acquisitions, Xero is managing the business to cashflow break-even within its current cash balance, without drawing on its debt facility or the net proceeds from convertible notes" that were issued last month.

"Cash outflow (operating less investing outflows) in the financial year ended 31 March 2019 is forecast to reduce from the financial year ended 31 March 2018," the company said.

For the half-year, operating and investing cash outflows totalled $40.1million, up on $30.9million in the same half a year earlier. However, once cash applied to investments is excluded, that dropped to $9.8million in the current half, versus $30.9million in the previous comparable half.

Cash outflows represented 4% of total revenue, which was up 37% to $256.5million in the half, compared with more than 15% in the first half of 2018 and almost 30% in the first half of the 2017 financial year.

Annualised monthly recurring revenue, a metric the company uses to demonstrate revenue momentum, rose 40% compared to a year ago, at $589.1million. The company added 193,000 to its customer base, which is concentrated in Australia and New Zealand, grew strongly in Britain, and started to penetrate the relatively under-developed US market for cloud accounting services.

Gross margin improved 2.6 points to 82.8%, thanks to efforts to deepen partnership offerings, the company said.

Xero opened offices in Hong Kong during the half-year and reports growth in South African sales.

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