Exclusive: Xero lifts half-year revenue 20% to NZD $1.2b

Accounting software provider Xero increased operating revenue by 20% to NZD $1.194 billion for the six months ended 30 September 2025, compared with NZD $995.9 million in the same period last year.

Revenue growth was 18% after adjusting for foreign currency movements.

Subscription revenue rose 18% to NZD $1.115 billion, accounting for most of the group's revenue. Other operating revenue increased 44% to NZD $79.1 million, supported by financial services performance and higher payment volumes across its three largest markets.

Subscriber additions and higher average revenue per user (ARPU) contributed to revenue growth. Xero's subscriber base grew by 10% over the 12 months to 30 September, with 404,000 net additions taking the total to 4.59 million.

ARPU increased 15% in nominal terms and 8% in constant currency. The increase reflected pricing changes, higher financial services revenue and continued growth in payments.

Annualised monthly recurring revenue (AMRR) rose 26% to NZD $2.7 billion, or 19% in constant currency.

Regional performance

Australia remained Xero's largest market, generating NZD $545.7 million in operating revenue, up 19% year on year. Revenue in New Zealand increased 8% to NZD $118 million.

Combined revenue from Australia and New Zealand rose 17% to NZD $663.7 million, representing 56% of group revenue.

International revenue increased 24% to NZD $530.5 million, accounting for the remaining 44%.

Revenue in the UK grew 25% to NZD $339 million, while North American revenue increased 21% to NZD $71.6 million. Growth in both markets reflected subscriber additions, pricing changes and higher financial services revenue.

Revenue from the rest of the world increased 22% to NZD $119.8 million, with South Africa the largest contributor.

Profit performance

Net profit increased 42% to NZD $134.8 million, compared with NZD $95.1 million a year earlier.

Operating income, however, fell 22% to NZD $137.1 million, reflecting costs associated with Xero's acquisition of US payments business Melio.

Operating expenses increased 30% to NZD $919.9 million. General and administration expenses rose 48% to NZD $154 million, mainly due to higher executive personnel costs related to the accounting treatment of option grants and sign-on packages announced in FY25.

Sales and marketing expenses increased 19% to NZD $378.9 million, while product design and development expenses rose 18% to NZD $336.4 million.

Excluding Melio-related acquisition costs, operating expenses represented 72.8% of revenue, compared with 71.1% in the previous corresponding period. On this adjusted basis, operating income increased 6%.

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rose 12% to NZD $350.9 million. However, the adjusted EBITDA margin declined from 31.4% to 29.4%, reflecting higher general and administration costs and continued investment in product development and sales activities.

Cash generation

Xero generated NZD $321.1 million in free cash flow, up 54% from NZD $208.7 million in the previous corresponding period.

Free cash flow margin increased to 26.9%, compared with 21% a year earlier. Cash receipts from customers rose 20% to NZD $1.187 billion, in line with revenue growth.

Xero's Rule of 40 measure reached 44.5%, up from 43.9% in H1 FY25. The measure combines revenue growth in constant currency with free cash flow margin.

Melio acquisition

Xero completed its acquisition of Melio in mid-October 2025, following an agreement announced in June. The acquisition adds US small business bill payment capabilities to Xero's platform, including accounts payable workflows and payment options.

Xero plans to integrate Melio's bill payment offering into its platform for US customers, with an initial rollout scheduled for December 2025. The acquisition is intended to support Xero's expansion in the US market and create further opportunities to develop its payments business.

Full-year outlook

Xero revised its FY26 operating expense ratio forecast to around 70.5%, excluding transaction costs associated with the Melio acquisition.

This is down from its previous expectation of approximately 71.5%. The improvement is primarily attributed to operational efficiencies, with the inclusion of Melio providing a smaller benefit.

Xero expects the operating expense ratio to be lower in the second half of FY26 than in the first half.

The company also plans to continue investing in its platform, including artificial intelligence capabilities, payments and mobile services, while focusing on subscriber growth and increasing revenue from existing customers.