Xero Limited (XRO.AX) Earnings Call Transcript & Summary

Good morning from Auckland, New Zealand, and welcome to Xero's 2025 Annual Meeting. I'm David Thodey, and I'm Chair of Xero's Board. Firstly, thank you for attending today's meeting. So just before we formally open the meeting, I just want to say we're here for our Auckland office and the procedures for today's virtual meeting are intended to provide you the same opportunity to participate as you would be at a physical meeting. This includes asking questions and voting using an electronic voting card, and I'll discuss this process shortly. Now in the unlikely event that we experience technical issues that impact the meeting, I'll assess the circumstances and communicate further with you. Now for any reason, this isn't possible, you will be e-mailed instructions on how and when to rejoin the meeting. Now I think I'm now informed by our Company Secretary that a quorum is present, and I now declare the meeting formally open. So I'd like to introduce the Board and members of Xero's executive leadership team. Now so joining me here in Auckland, Directors, Mark Cross, and Susan Peterson; and from Xero's executive leadership team, our Company Secretary, Damien Coleman; and then joining us from San Mateo in the United States are our Chief Executive Officer, Sukhinder Singh Cassidy, and our Chief Financial Officer, Claire Bramley. Now as we are a global Board joining us online from the U.S. are our directors Steven Aldrich, Anjali Joshi, Brian McAndrews, and then joining us from the U.K. is Dale Murray. And I just want to say that she is joining again in the small hours of the morning. I'm also glad to say that Simon O'Connor from our auditors, Ernst & Young, is present and available to answer any relevant questions directed to him. Xero's General Manager, Corporate and Regional Communications, Simon Fitzgerald will read out written questions submitted by shareholders through the online meeting platform, and he's here in Auckland with us as well. So now let me turn to the order of events for today, and I'll just briefly run through the agenda. In a moment, I will just say a few words of introduction and review around the performance of the company. I'll then pass to our CEO, Sukhinder, and then we'll turn to the formal business of the meeting as set out in the notice of meeting where questions for each item of business will be addressed. After that, we will give you an opportunity to ask any general shareholder questions before I close the meeting. So I just want to again give you a little bit of administration about the meeting. So before I give my address, I do want to outline a little bit about how this online platform works. Voting on the resolutions will be conducted by poll, and that poll is now open. Please vote by using the electronic voting card that you should receive after clicking that get a voting card button. Shareholders can submit written questions during the meeting by clicking on the Ask a Question button, and I encourage you to submit any questions as soon as possible, including questions about any of the resolutions. Shareholders can also ask questions by telephone. Now to do that, use the teleconference facility. Shareholders should click on go to web phone button type in your name and then click the green call button. Now if you wish to ask a question, dial star 1 on your keypad to indicate to the moderator that you wish to ask a question. The teleconference moderator will require your name. At the relevant time, we'll introduce you and prompt you to ask your question by unmuting your line. Now if you have any issues using the platform, please check the virtual meeting online guide, which is an access through that download section at the bottom of your screen or from Xero's website or if you need to contact the phone help lines, which is shown on this slide. I hope you've got all that detail. Okay. Let me now move to my address. Well, I'm very pleased to say that Xero delivered a strong operating result in financial year 2025. The company delivered a successful balance between revenue growth and profitability with a greater than rule of 40 outcome of 43.3%. Now this is a common metric used by high-growth technology companies as an indicator of their ability to generate profitable revenue growth. It comprises the sum of consistent currency revenue growth and free cash flow margin. Now what these results indicate is that there is strong momentum in the business and the trust our customers and partners place in us is strong. Now Sukhinder will provide you with more details on these results shortly. Let me now just make a few comments about our operating environment. As you would imagine, the environment in which we operate remains volatile and complex. Small businesses continue to be a critical engine for growth in all the markets where we operate. However, small businesses are facing headwinds from inflation, productivity challenges and other macroeconomic influences. Now we monitor this through our Xero Small Business Insights program, which uses anonymized and aggregated customer data and it gives us an indication of how small businesses are performing. And I'm pleased to report that to date, in aggregate, Small businesses are continuing to report positive sales growth, which is encouraging. And that really speaks to the resilience our customers show in navigating these conditions, which is very encouraging. There perseverance underscores the value of Xero as an essential platform for greater efficiency and effectiveness about automating routine tasks and delivering really valuable financial insights that allow them to manage their business better. We are pleased that the market opportunity for all our products remains extremely large and growing with a largely untapped $100 billion market opportunity. So the environment is encouraging. But let me talk a bit about how our progress is going. Now during financial year '25, Sukhinder working with the Board, welcome several new leaders to our executive and senior leadership ranks. This included our new CFO, who we just introduced Claire Bramley, and our new Chief People Officer, Jeff Ryan. These new leaders have previous international experience that we believe will help to lead our global portfolio of businesses and complement our already strong existing team. We are now more than a year into executing our 3-year strategy, what we call our '25 to '27 strategy called winning on purpose. And the business has made good progress. And what I'm very pleased about that it is a clear and very focused plan. This strategy is firmly anchored in our purpose, which we have talked about many times before, to make life better for people in small business, their advisers and communities around the world. A critical part of our strategy is having winning solutions. As you know, they are accounting payroll and payments. And in the 3 key markets that we serve, Australia and New Zealand, U.K. and U.S.A. And we call this our 3x3 strategy, very simple. The recently announced acquisition of Melio is a strong strategic fit that will provide a step change in our U.S. solution for payments. This transaction is vital for accelerating this 3x3 strategy. The Board has been deeply involved in this transaction from its inception and has worked closely with the management team to test our strategy and the assumptions for this acquisition. We are confident in the opportunity that Melio provides to 0. It's tight alignment with our strategy and the growth opportunity provides us, which Sakinda will discuss shortly. Additionally, we are very committed to pursuing sustainable growth in a socially responsible way. As a Board, we believe in high standards of governance, which is required to create long-term value. Now in line with evolving global standards this year for the first time, we have published a separate sustainability report making it easier for stakeholders to find relevant information. A key update within the report are our new climate targets. They are aligned with the science-based targets initiative and the goals of the Paris agreement. And I want to stress, we are also helping our customers on their own sustainability journey, providing them with access to sustainability-related applications and educational resources. As we know and as we often emphasize, Trust is the foundation of our business. And we have been rigorous in our approach to managing security, especially cybersecurity. Through multiple layers of data protection and robust management processes, and as we all know, we must be vigilant in this area. We must continue to be a trusted custodian of all our customers' data and this extends to how we approach and implement new technologies. So this area continues to receive enormous focus. Artificial intelligence also represents 1 of the next significant opportunities for Xero -- we are already investing in the use of AI across our business for our customers, the focus is on using AI to help them to use our products in more efficient ways. And we're excited about our Gen AI-powered smart business companion, just or JAKs for short, JAX, this will be a key focus at our upcoming Xerocon event in Brisbane in early September. As we broaden its offering to help both small businesses and their advisers work more efficiently. Adopting GenAI internally also provides us with opportunities to increase our productivity and effectiveness. And importantly, AI allows our teams to focus on high-impact work that adds tremendous value to 0. So we're committed to pursuing the use of AI responsibly, and that builds on this whole theme of trust. Building and maintaining trust being at the heart of our business and our approach to AI can be no different. We have a strong ethical framework defined by established and responsible data use commitments that we made many years ago as well as our internal government principles. We have a continued commitment to responsible innovation and empowerment. Now we do understand that new technologies can raise complex considerations in areas like privacy and security. The need to retain transparency and also have explainability, especially in AI. Safety and reliability remains absolutely critical fairness, inclusivity. And of course, what is very important in the world of AI is accountability. Our governance approach is designed to guide us through these considerations. So we hope to take advantage of the many exciting opportunities these technologies provide and also build on our position as a trusted platform. Executing our strategy will also require world-class leadership and a high-performing culture, which is aligned with shareholder value creation. Our approach to remuneration seeks to deliver this. I do want to just stress that this is founded on strong principles that connect reward to performance and is designed to attract world-class talent needed to deliver our global strategy. As 1 of the few truly global SaaS companies on the ASX, securing leadership in a competitive international market is essential to creating long-term shareholder value. The framework that Susan will outline in her address is necessarily different from many ASA-listed companies and is a deliberate consequence of our strategy and our global ambition. We have actively engaged with stakeholders, including shareholders and proxy advisers on this topic over the last year, and we thank them for their feedback on our remuneration approach, which has informed both remuneration structure and enhancements to this year's remuneration report. I do want to say that while we are committed to listening and responding to this feedback, we are also committed to attracting, motivating and retaining the global talent required to lead CRO's global strategy. So now let me now turn to the Board and we are focused on upholding the high standards of governance. So I just want to speak to this for a moment. I want to just say that the Board is well supported by 3 committees: the Audit and Risk Management Committee chaired by Mark, the People and Remuneration Committee chaired by Susan and the Nominations and Governance Committee that I chair. The Board has a continuous focus on succession planning to ensure we have the right capabilities to position Xero for future growth. We want really do require a global team of experienced engaged directors with a diverse mix of skills and knowledge and backgrounds. Do want to take this moment just to thank my fellow directors for their significant commitment and diligence in guiding Xero through this period of global growth. So in closing, we are very pleased with our financial year '25 performance and the significant progress made against our strategic priorities. The Board will continue to work closely with Sukhinder and her team to oversee the execution of our strategy, deliver on our purpose and drive disciplined customer-focused growth. So on behalf of the Board, my thanks to Sukhinder and the entire leadership team at Xero for delivering on another year of strong results. We are also deeply appreciative of the passion, expertise and dedication of our people right around the world. Their efforts are fundamental to Xero's success, and we're committed to helping them do the best work of their lives. Finally, I'd also like to thank you, our shareholders, for your continued support and confidence in Xero. So that concludes my address. I will now hand over to Sukhinder before we commence the formal business of the meeting. So Sukhinder, over to you.

Thanks, David, and good afternoon from San Mateo. It's great to be joining you all virtually for our annual meeting. Today, I'm going to summarize Xero's 2025 financial year results and then as well as briefly discuss our strategic priorities, including Melio, then to finish, I'll touch on Xero's outlook. Now I want to move to the next slide. We're really pleased, of course, with our financial '25 year and in particular, our ability to deliver strong financial outcomes while executing on our strategy with focus and purpose. Revenue grew 23% to $2.103 billion year-on-year with each of our large markets delivering macro-resilient strong revenue growth above 20%. Adjusted EBITDA of $641 million was up $114 million or 22% over last year. Together, the strong operating results and improved free cash flow generation resulted in a rule of 40 outcome of 44.3%, up by 3.3 percentage points year-on-year. Now moving on. Xero, as you can tell, is a macro resilient business, and we continue to emphasize this over the years. The charts in the middle and on the right show our key revenue drivers, including subscriber and ARPU growth. We provide both reported and underlying subscribers and ARPU. Underlying excludes the impact of the removal of the long idle subscriptions, which we completed in H1 of fiscal '25 with 160,000 subscriptions removed. For more details on this program, please refer to our full year material results. Now on an underlying basis, subscriber growth was 10% and ARPU was 11%, which were both strong outcomes. Now this next slide brings the key financial outcomes together as we balance growth and profitability, including Rule 40. If we move from left to right, the first chart shows strong growth in adjusted EBITDA year-over-year up 22%. This contributed to a strong free cash flow margin of 24%, which you can see in the middle chart. Adding this to revenue growth, where we use the 20% constant currency metric, resulted in our Rule of 40 outcome, increasing by another 3 percentage points to reach 44. We're really pleased with this outcome. It demonstrates how we've continued to deliver revenue growth, supported by disciplined investment to grow profitability while at the same time adding value for customers. Now David, I think, referenced our 3-year strategy, which is called winning on purpose. And as you know, our vision and our purpose are constant at Xero. The winning on-purpose strategy that we articulated in February 2024 has 4 key pillars, when the 3x3, which David referenced, which is really our 3 most critical strategic markets and our 3 biggest super jobs, build a winning GTM playbook for Xero's next chapter, really improving the motions in our sales and direct efforts, channel efforts, win the future, which is really about focused bets and innovation like AI and mobile. And lastly, of course, unleashing Xero and Xeros to win. These 4 pillars are underpinned by our disciplined capital allocation framework for investment. This, again, tightly aligns with our strategy, our Ruble 40 aspirations and our build by or partner approach to pursuing organic or inorganic opportunities, such as the acquisition of Emilio. Since the announcement of the melioacquisition, we've updated these aspirations, which I'll talk to shortly. Now if you look at FY '25, we feel like we've made great progress as we execute our strategy and continue to execute it in this period with focus and purpose. We made a number of moves in '25 and which was the first 12 months of the strategy period, and these are highlighted on this slide. I won't go through all of them. However, I do want to touch on key themes under each of the 4 pillars that show our disciplined capital allocation approach. First, we have accelerated product delivery for the 3x3 through working hard to build products ourselves, but also through partnerships and our acquisition of SIFT and more recently, Melio. Secondly, we've made a series of changes to help our build a winning GTM playbook. This included removing long idle subscriptions, simplifying our subscription plans in packaging and introducing new sales motions to deliver an improved mix. We launched initiatives such as our partner assist channel and AV segmentation to better enable our sales force to deepen relationships. We've also launched our B2B marketing engine and have become more sophisticated in performance and product marketing. Thirdly, we're allocating capital long term as we look to win the future with focused strategic bets and AI in mobile. We've launched and rolled out JAK and beta to all of our BE customers in less than 12 months. We've also made great progress in our mobile product in sign-ups, improved design, purchase by flows are an example of this. We've had more sign-up success in mobile, and of course, I'll touch on AI shortly. And finally, we're unleashing Xero and Xero to win, this past year, we introduced a new performance management framework intended to drive focus and clear connection between our purpose, our strategy and our compensation systems. Now AI, as we noted, is a strategic priority for the company as it is for many companies around the world. We made great progress in '25 with our Win the future strategic priority on delivering a leading AI experience for SPs and ABs -- but of course, we recognize that AI represents 1 of the most significant opportunities for 0, and we are excited to grasp it. The focus for customers is on accelerating innovation through new ways to interact new insights and automated actions. For Xero as a company, internally, AI provides, of course, an opportunity to tribe-charge the productivity of Xeros. Now if we think back to FY '25, we note that, again, in less than 12 months, we took JAX, our in beta business companion from prototype to launch to beta access to 100% of our BE customers. Meanwhile, alongside the original invoicing tasks that we actually demoed at Investor Day, we've added new features such as giving customers answers on how best to use Xero through JAX and providing generalized support through our chat bond. Looking ahead into FY '26, our plans to accelerate the delivery of AI solutions include a plan to launch JAX for accountants and bookkeepers to support their workflows and to continue to broaden the value on Xero's core offerings by leveraging Gen AI more across the end-to-end experience for small businesses. Xero on Brisbane is just around the corner in September. I'm very much looking forward to going, and we look forward to showcasing to our customers everything that we're working on here. Internally, we're scaling the use of GAI tools within every function at Xero and everyone is pursuing their own targets and use cases, which we have tied to our company-wide objectives for the year with a goal of increasing use of AI within every team. This includes areas such as sales enablement, marketing content generation and of course, product and technology development. So you can see our investment is disciplined. It's aligned to our strategy and focused on the significant opportunities in front of us, including AI. Now, of course, I'd like to touch on our recently acquisition -- announced other move the acquisition of Melio. Now why did we acquire Melio? Well, we're really excited about the acquisition because of the opportunity it creates for our U.S. business and accordingly, our global growth aspirations. Melio is a world-class U.S. bill pay platform. It solves accounting payable workflows and provides multiple bill payment options, ways to pay through the platform for both U.S. SMBs and their accounts and bookkeepers, helping them save time and manage cash flow better. There are 4 key strategic pillars to the acquisition, which I'm going to outline again here, and we talked about in late June upon announcement. First, there is a critical customer need in a large and growing market. SMBs and their AVs want their accounting and payments together. They're each must do jobs, but together, they become more powerful and efficient when integrated on the same platform. And of course, I want to note that the TAM of U.S. small business payments is 1 of the largest TAMs in the world in the payment sector. Second, the combination is a powerful strategic fit for us at Xero, acquiring Melio aligns with our critical 3x3 strategy. It gives us a step function change in our U.S. proposition, our scale and our monetization opportunity. On day 1, by bringing Melio and Xero together, we will nearly triple our U.S. revenues and ARPU, and this is before synergies and pursuing our combined game plan. Third, it is a best-in-class asset. Melio has a world-class team and platform. It has a very strong growth track record. We'll extend our reach to millions of SMBs through its direct and its syndicated offering is well regarded by customers and has a very experienced team behind it. Fourth and most importantly, together Xero and Melio is a compelling value creation story longer term. We believe these are 2 very complementary platforms and teams delivering improved unit economics over time and an attractive long-term growth profile for the U.S. and for the broader Xero group. By bringing Melio to Xero, we have added to our global growth prospects. Our aspirations are strong, and they are credible with this acquisition. We expect the combined business to significantly accelerate our U.S. revenue growth to give us the opportunity to more than double Xero's FY '25 group revenue base in FY '28. And this is before synergies. We will continue to anchor on our Rule of 40 aspirations and deliver a balance of both growth and profitability at the group level. We note that revenue growth outcome is anticipated to support the achievement of a greater the Rule of 40 outcome for the group in FY '28 with a dilutive impact in the interim as we will continue to invest in Melio and the business further scales. Now moving to our current year financial outlook. There are no changes to the outlook we provided on the announcement of the transaction. Total operating expenses as a percentage of revenue is expected to be around $71.5 million in fiscal '26. As we explained when we first provided this outlook, there were some nonrecurring elements in this, and we expect seasonality with the ratio expected to be higher in H1 than H2. Please note that, as we highlighted with the Melio announcement, the FY '26 operating expense to revenue guidance excludes any impacts of the acquisition, including transaction costs. We will provide an update in relation to any impact of the acquisition upon its completion. As I just mentioned, we continue to target completion or close of the proposed transaction during the calendar year 2025. Of course, in addition to these shorter-term considerations, I spoke earlier to the FY '26 revenue and Rule of 40 aspirations. Now before I conclude, I want to also acknowledge everyone who plays such an important role in our journey at Xero. In particular, of course, Xero's around the world to continue to work hard and with purpose to deliver for our customers, our partners and our shareholders. I'd also like to thank David and the Board for their continued support and hard work. And to you, our shareholders, thank you for your ongoing support. I'll now hand back to David for the formal business of today's meeting.

Well, thanks, Sukhinder. That's a very fulsome update. So thank you. We'll now move to the resolutions and voting for all 5 resolutions is now open and will remain open for 5 minutes after the close of the meeting. Our Company Secretary has confirmed that the Notice of Meeting has been sent to all shareholders and other persons entitled to receive it within the notice period. The matters requiring consideration today are outlined in detail in the notice of meeting and the notice will be taken as read. Xero's financial year '25 financial statements, together with the auditors report, and in our annual report, which is available on our website. All 5 of today's resolutions are ordinary resolutions. This means that to pass, they require more than 50% of votes cast by shareholders entitled to vote and voting on the resolution. Resolution 5 is a nonbinding advisory resolution. Xero's share registry provider, MUFG corporate markets is going to conduct the voting by way of poll, and Julie Stokes of MUFG Corporate Markets will be acting as a returning officer. Votes will be counted after the end of the meeting and results published on the ASX and CROs website. shareholders or their proxy holder can cast their vote using the electronic voting card received after validating online registration. To validate registration, to be asked to enter your security holder reference numbers are in or holder identification number, in HINs postcode if you're in Australia or country if you're outside of Australia. To then cast your vote, please click the edit card button. The proxy votes that have been submitted prior to the meeting will be set out on the slide shown for each resolution. Now for some context, the current number of Xero shares on issue are approximately 165 million shares. Shareholders have appointed the Chair of today's meeting, that's me, as proxy for approximately 123 million shares voting either for, against or with discretion for all resolutions. As indicated on the proxy form and in the notice of meeting, my intention as Chair is to vote all discretionary or underrated proxies held by me in favor of each resolution. Shareholders can submit written questions via the online portals I mentioned before during the meeting by clicking Ask a Question button or by using the teleconference facility. To ensure the question is Richard some time, I'll ask again that you submit them as soon as you can, and if you haven't already done so. Again, any general shareholder questions submitted prior to or during the meeting will be addressed after the formal business is completed, and I will endeavor to address as many relevant questions raised during the course of the meeting as possible. So let's turn now to the first resolution, which relates to the authorization of the Board to fix the remuneration of Xero's auditor Ernst & Young. Now so are there any questions from telephone participants regarding this resolution, operator?

There are no questions from holders participating by telephone.

Well, thank you, operator. I will now take questions from shareholders who have submitted written questions via the online platform. Simon. Are there any questions regarding Resolution 1.

Thank you, David. No written questions have been received.

Well, as we haven't received any questions, let's move now to the next resolution. We now turn to the election and reelection of directors. Resolution firstly concerns the reelection of Brian McAndrews as Director of Xero, who is joining us to the United States. Brian, who's been on the Board now since February '22, and he retires this meeting and offers himself for reelection. The Board, other than Brian, recommends Brian to you as a Director and unanimously supports his reelection has been a strong contributor to the Board. And so I'm going to pass to Brian now to say a few words about himself. So Brian, over to you.

Thank you, David. It's a pleasure to be here with you all for Xero's 2025 Annual Meeting. Thank you for the opportunity to seek your ongoing support for my reelection as an independent director of Xero. For the past 3.5 years, since February 2022, I've had the privilege of contributing to Xero, a globally recognized leader in cloud accounting with a significant opportunity ahead. I'd like to briefly cover why I remain committed to Xero and how it can continue to contribute as a Director of your company. Xero is a purpose and performance-led company committed to helping global small businesses and their advisers benefit from our seamless small business platform, saving them time, providing beautiful experiences and helping them to thrive. Xero has global ambitions and significant white space to capture with the majority of small businesses around the world yet to discover the benefits of doing business in the cloud. We have a world-class and dedicated team. We continually impressed by the caliber of talent, including my fellow directors, the leadership team and everyone I needed Xero. The team is strongly purpose-led and keeps our customers at the heart of everything they do. And now I'd like to talk briefly about what I bring to the Board. I'm an experienced Non-Executive Director and former CEO and has helped drive growth and innovation for tech leading technology, Software-as-a-Service and cloud-based companies. During my executive career, I was CEO of Pandora Media, a streaming music provider in the U.S. and Qantas, a digital marketing services technology company acquired by Microsoft in what at the time was the largest acquisition Microsoft had ever made. During my more than 10 years as CEO, I learned a lot about how to create and deliver against strategies designed to meet evolving customer needs to lead purpose-driven organizations with positive cultures to oversee international expansion and to effectively and efficiently scale technology businesses during periods of rapid growth. I currently serve as Lead Director on the Board of Frontdoor, Inc., a platform for home services. And as the Director on the Board of the New York Times, where I served as Presiding Director for 6 years. I also serve as the Director of the Wine Group and USA Climbing and as a senior adviser to Spectrum Equity. In my career, I've had the privilege of serving on the boards of nearly 20 companies, 10 of which are or are public and ranging from early stage to multibillion-dollar multinational companies. I've learned how to be an effective Board member assisting management formulating strategy, working with CEOs on leadership and management development, advising on scaling and helping enhance Board effectiveness. I was also recognized in the National Association of Corporate Directors Directorship 100 in 2019, acknowledging influential board members. As part of my responsibilities on Xero's Board, I'm also a member of the People and Remuneration Committee and Nominations and Governance Committee. Over the past 3.5 years, I've had the privilege to support the Board and Xero through our CEO transition the launch of Xero's fiscal year '25 to '27 strategy and ongoing execution and the evolution of Xero's executive and senior leadership team. Each of these milestones has helped set up the business for continued growth and success. I have the determination capacity to continue to be a high-performing Director of Xero on your behalf. My focus as a director is aligned with yours as shareholders to see Xero create long-term sustainable value and to deliver on our purpose to make life better for people in small business, their advisers and communities around the world while also making Xero place where people can do the best work of their lives. With your support, I look forward to working with my fellow directors and the Xero team as we work towards these goals. Thank you. And now back to you, David.

Well, thanks, Brian. And let me just reinforce how pleased we're able to have Brian serving on the Board. So now I'd like to invite shareholders to submit any questions regarding this resolution. You can see the voting on the screen. So are there any questions from telephone participants regarding Resolution 2, operator?

There are no questions from holders participating by telephone.

Okay. Well, thank you, operator. Are there any questions now from written submissions via the online platform. Simon, anything at all?

No written questions have been received, David.

Okay. Well, as we haven't received any questions, we'll now move on to the next resolution, which is Resolution 3 and concerns the reelection of Susan Peterson. Susan, who has been a long-serving Board member since February 2017 is retiring this meeting and offering herself for reelection. The Board, and again, other than Susan, recommends Susan as a Xero Director. She has unanimous support from all Board members. So let me now ask Susan to say a few words. Susan, over to you.

Thanks, David. [Foreign Language]. Good morning. and thank you for the opportunity to present my credit this for reelection as an independent director of Xero. I have been a full-time director adviser and investor for more than a decade, and I'm currently the Chair of a global film distribution software for Investor Group, and an independent Director of bundled utility provider, Mercury and a Director on the Private Wealth Institutional Equities and Investment Banking firm, Craig's Investment Partners. My past roles have included directorships in ASB Bank, Trustpower property for Industry and Aveda I've also served as a member of the New Zealand Markets Disciplinary Tribunal for 9 years. Look, it's been a real privilege to serve as a director of Xero for the past 8.5 years and share in the phenomenal growth story. As a New Zealand-based director, I am super proud to represent New Zealand's - Xero home market and provide an anchor to the Kiwi culture that provides the foundation of everything that makes Xero so special. In addition to serving as a non-executive director, I also Chair Xero's People and Remuneration Committee, and I'm also a member of our Nomination and Governance Committee. I've had the privilege to chair our People and Remuneration Committee through what has been another important period in Xero's history. Highlights during this time have included the global search that resulted in the appointment of our CEO, Sukhinder Singh Cassidy, and supporting the evolution of Xero's people and remuneration structures to attract, motivate and retain a world-class leadership team that has the capability to execute on our truly global strategy. David and I spent considerable time with our investors, and it has been really pleasing to hear their positive feedback on the caliber of our executive leadership team and the rapid uplift in productivity and performance in the last 3 years. I am a strong advocate for creating an environment that fosters attracting and retaining high-caliber talent that supports our purpose-driven and high-performance culture at Xero. A critical part of this has been the implementation of a new performance management framework and working to strengthen the link between pay and performance. This focus has helped lead Xero to deliver strong rule of 40 outcomes, including, as David referred to before, the 44.3% in fiscal year '25, and a total shareholder return over the last 3 years of 69% to 31 March 2005. Since I joined the Board way back in 2017, we've had a compound annual share price growth rate of over 30%, resulting in over 9x increase in share price. I'm really excited about continuing to work with the Xero team to realize the opportunities ahead and navigate the inevitable challenges. I would very much appreciate the opportunity to continue to serve on the Board and to assist the team in supporting Xero's ongoing success. Thank you.

Well, thanks, Susan. Again, Susan been a major contributor to the Board over that period. So now you can see the voting on the screen. I'd like to invite shareholders to submit any questions regarding this resolution. So firstly, again to any calls from the operator, anything -- any questions at all, operator?

There are no phone questions from the holders participating.

Okay. Well, thank you, operator. I'll now take questions from Sesa submitted through the online platform. Do we have anything, Simon?

Thank you, David. No written questions have been received.

Okay. Well, as there's no questions, we'll move to the next resolution, which concerns me. So I will now pass over to Susan to introduce Resolution 4.

Thank you, David. The next resolution, Resolution 4 concerns the reelection of David Thodey. David, who has been on the Board since June 2019 and has been Chair of the Board since February 2020, retires at this meeting and offers himself for reelection. The Board, other than David, recommends David to you as a Xero Director and unanimously supports his election. I'll now invite David to say a few words.

Well, thanks, Susan, and thank you to our shareholders for the opportunity to seek your support for my reelection as an independent director of Xero. Well over my nearly 40-year business career, I've had a focus on innovation, technology. And in more recent years in research and science and tertiary education, public policy, and I've worked across Australia and New Zealand and then the Asia Pacific, Europe and North America. So I've had an opportunity to see quite a breadth of businesses and geographic national environments. And I've had the privilege to also be a CEO of both IBM, Australia, New Zealand and Telstra. And of course, I've had a number of Board directorships across technology, telco, science and research and health care sectors and a number of industry parties. Now my current responsibilities, besides chairing Xero, which I enjoy enormously being on the Nomad Governance Committee. I'm a member of the Ardian Risk Committee as well. I'm also Chair of Ramsay Healthcare, a global hospital group and also Chancellor of the University of Sydney. I'm active in public policy innovation, including as a member of the Reserve Bank of Australia Governance Board, which was recently set up. Now I just do want to say Xero is a unique and exciting company. And it's aspiration to be a world-class SaaS company growing from our New Zealand really is exciting. And I really remain committed to the potential for Xero to serve more customers and partners globally as we pursue the purpose of Sukhinder and I talked about. Over the last 3 years, we've seen significant progress as we expanded globally, increased our focus on driving this profitable growth to deliver long-term shareholder value. I'll briefly touch on the '25 to '27 strategy winning on purpose, which is our commitment. There's tremendous delivery on Rule of 40, 2 acquisitions, Sift and Melio. It's been exciting to see the product delivery for our customers and the great returns for our shareholders. And of course, it's been a journey working with Susan to have led the Board through our successful CEO recruitment, and it's great to have Sukhinder on the team and now the new team that's come in. And what's really exciting is we see the opportunity, this great team and the new leadership has come in and with the great capabilities but we have more to do. And it is also with this objective that we really want to see Xero continue to be trusted holding these high standards of governance, creating long-term value for all our stakeholders. And I'm really committed to these objectives and working for you, our shareholders, if reelected. So that brings me to the end of my comments. So I'll pass back to Susan to goes through the process. So thank you.

Yes. And thank you very much, David. It was not often we get an opportunity to say thank you very much to our chair for all that he does. It has been a phenomenally busy 3 years, and it's nothing short of a sheer delight to work for with David as we work on this common purpose. But he does a phenomenal job, and the Board is right behind them. So I'd now like to invite shareholders to submit any questions regarding this resolution. Are there any questions from telephone participants regarding Resolution 4?

There are no questions from holders participating by telephone.

Thank you, operator. I'll now take questions from shareholders who have submitted written questions via the online platform. Do we have any questions, Simon?

Thank you, Susan. No questions have been received.

Okay. Well, with no further questions, I'll pass back to David for the next resolution.

Great. Well, thank you, Susan, and thank you for sharing that section. So this comes to the final resolution today, Resolution 5. Now as we said, this is a nonbinding advisory resolution to adopt Xero's remuneration report. The rem report can be found on Pages 93 to 125 in the '25 annual report. The resolution has been put forward voluntarily, which we've done now for a couple of years, as a matter of good governance, while the result of the resolution will not bind Xero or the board or have other legal consequences, the voting will result in us considering all the feedback. And when we look at future remuneration strategy, and next year's report, we will take comments on board. The Board does not consider making a recommendation of this resolution to be appropriate given each director has an interest in the matter. So we will be abstaining. Xero has voluntarily put a voting exclusion in place relating to this resolution and their votes will be disregarded if they are cast by a director, including me, CEO, CFO and closely related parties. There are some limited exceptions to this Resolution, which have been set out in the explanatory notes to the notice of meeting that have been provided to shareholders. So the way we're going to cover this is we thought we'd ask Susan, as Chair of the People and Rem Committee, to make a few comments in relation to Xero's remuneration arrangements and our remuneration report because there's been a long discussion on it. So Susan, can I pass to you?

Thank you, David. Well, the last financial year can best be described as a year of strong performance against our global 3x3 strategy. And this has been demonstrated through our strong financial results, including what we've already mentioned, the operating revenue growth of 23% to $2.1 billion and a greater than Rule of 40 outcome of 44.3%. This performance has translated into shareholder returns with Xero delivering total shareholder return of 16% over the year and 73% since full year '23. To deliver on our strategy, it is absolutely critical that we have the right talent on our team. And this year, we were delighted to welcome new world-class leaders to our executive team, including CFO, Claire Bramley, and our CPO, Chief People Officer, Jeff Ryan. Their global SaaS experience is already proving hugely valuable. We also fear well and thank long-serving Xero, Kirsty Godfrey-Billy and Nicole Reid for their significant contributions. We continue to prioritize supporting all of our Xero's to ensure that they can succeed and grow. And over the past year, we are focused on embedding our new performance and potential framework, expanded our investment in talent and leadership development and have been deliberate in our internal succession planning to ensure that we have a strong pipeline of future-ready leaders. It has also been a year of extensive shareholder, proxy and stakeholder engagement. Our Chair, David and I have engaged in no fewer than 50 of these meetings throughout the year. We have sought to ensure that our owners have been given the opportunity to have input as to how we might best balance our compensation structures to secure the global talent required to execute Xero's strategy successfully. We have also sought to uplift the level of disclosure that we have included in our remuneration report. Can I just say we are deeply grateful to the investors and proxy advisers who have given us their time throughout the year and provided frank and constructive feedback. As an ambitious ASX-listed company with global growth ambitions, new ways of thinking has been required in terms of what is needed to ensure that Xero can attract and retain our global talent. It was fantastic to have our investors and proxy firms willingly lean into understanding this dilemma and offer their thoughts on how we might best balance the interest of all. All their feedback has been specifically referred to in the remuneration report letter that opened. It was pleasing to hear directly from many of our largest active long-term shareholders who are very supportive of our approach and recognize the need for a globally competitive remuneration framework. We're also pleased to receive positive feedback from both shareholders and proxy advisers on our uplift to disclosures. In response to feedback, this year's remuneration report includes for the first time retrospective disclosure our short- and long-term incentive targets and outcomes and greater detail on our benchmarking process. Now as a New Zealand domiciled company, providing a remuneration report and the shareholder vote is voluntary. However, as David has said, our Xero team is committed to good governance, and we see this as an important way to obtain feedback from you, our owners. Our approach to pay at Xero is guided by 3 simple principles that apply to all our people from our newest members to us as directors on the Board, namely performance, the scope and criticality of role and most importantly, the location where the individual is based. These same principles were applied in a recent review of our CEO remuneration. The independent review of the CEO compensation package at that time based on data from a peer group of companies show that the package set at the tenth percentile of the peer group. It is super important to note that at the time, Xero's company performance set at the 87th percentile of the mCloud Global Index. Following review and after extensive shareholder and proxy consultation, the Board elected to move each component of the CEO compensation package to the market median, the 50th percentile of the peer group of companies, while also retaining and I'll call out Sukhinder here, including in her package specific ASX features to protect against the risk of asymmetric outcomes between the CEO and other shareholders. These are not common in the U.S. This review resulted in the CEO base pay and STI opportunity being reduced, going backwards, and our equity opportunity being increased. As a result, this package with at least 96% of the CEO's remuneration being performance-based or linked to share price performance. There are 2 areas in particular that were highlighted by proxy advisers in their reports. Let me touch on those now and highlight why we believe our remuneration structure is appropriate. First, long-term equity or LTE. This is tied to tenure and is a standard and widespread component of remuneration in the U.S. technology sector viewed as a form of cash-efficient deferred fixed remuneration that also forms an important part of executive retention. While service based, the ultimate value of the LTE is directly tied to Xero's share price performance, which together with the holding periods makes it meaningfully aligned to long-term shareholder value creation. It is market practice in the U.S., the LTE balance to performance hurdled LTI is 50-50. At Xero, the balance between LTE and performance hurdle LTI potential is 40, 60 in favor of the LTI. And it is really important to note that this balance has not changed from last year. Secondly, the one-off option grant. This was provided to bring CEO's total equity exposure to the median of the U.S. peer group. Options are 1 of the purest forms of pay for performance. They have absolutely no value unless the share price grows above the at-the-money exercise price of AUD 171.11. At the moment, they're not worth anything. This creates a significant absolute TSR hurdle that must be overcome before any value can be realized by our CEO. To further reinforce the long-term focus, these options are subject to post-vesting holding restrictions, extending the total period of exposure for up to 4 years. And we've been clear that no further options grants would be expected to be made. Again, I want to be very clear here that, that extended holding period is also not usual in the U.S. and has been agreed to through discussions with proxy firms here. Serious share price was to drop below AUD 171.11. As I've said, the options hold no value. In serious past, we've tried to secure global talent on remuneration structures that have been tied to Australian pay practices. Our learned experience has given us the confidence to know that it is mission critical to pay local market rates if we want to secure A-grade talent with the experience needed to prosecute the strategy. And on this point, I would just sort of say, as a New Zealand domiciled company as we look to expand our business into Australia, we never expected our Australian executives to accept Kiwi base pay. Finally, I would like to assure all shareholders that the voting outcome of Resolution 5 and the comments that have been provided will be carefully considered by the Board when setting future remuneration strategy and preparing next years remuneration report. You might also be interested to know that the CEO compensation package having been reviewed the 50th percentile of the peer group of companies. Xero's actual company performance right now at this time of the AGM, continues to sit at the 90th percentile of the mCloud Index. So it's fair to say that we're delighted with the long-term value being created for shareholders by our CEO and her team. Now turning briefly to director compensation. We have not reviewed the director fee pool this year, which was due on its 2-year cycle. We all felt it was important to focus first on the executive management compensation structures. We will bring a recommendation to shareholders regarding the directors' fee pool at next year's AGM. Now finally, I'd like to thank my colleagues on the People Remuneration Committee for their dedication and support which has -- can only be described as a transformative year for our people and for Xero. And I'll now hand back to David.

Well, thanks, Susan. And I think that from the presentation you can see the amount of attention and detail Susan given to what has been a complex issue, but we feel that this is the right thing for the company. So I'd now like to invite shareholders to submit any questions on this resolution. So operator, are there any telephone questions?

There are no questions from holders participating by telephone.

Okay. Well, thank you, operator. Let me now take questions from a written question for the online platform. Simon, do we have any questions on Resolution 5?

Thank you, David. Yes, we have received a question from Stephen Mayne, who asks, "thank you for voluntarily putting the REM report up for the vote once again and also for disclosing the proxy votes early along with the formal addresses. The 48% against vote on the proxies is a strong message. Which of the proxy advisers recommended against and what reasons that they give, what engagement with shareholders and proxy advisers is planned as a response, and what changes to remuneration are likely going forward?

Okay. Well, thanks, Stephen, for those questions. I'm going to ask Susan to answer a couple of them. But -- let me just make some comments, which I think Susan has covered. I mean I just want to stress why we have landed at this place is that this is absolutely critical to our strategy to be a global company and to the principle that we pay to the country where they are people are domiciled. And this is about getting the best people to run this company going forward. And those 2 principles have driven us in everything we've done. And I think Susan has gone through and explained all the puts and takes on that. Susan also mentioned that we have actively invested time with our major shareholders and with the proxy advisers, and really strong support for our institutional investors in terms of what we're doing as they understand it. They've got some suggestions that they want us to look at. But for the proxy advisers, I mean, it's more difficult because they look at just ASX-listed companies, and we are looking at it being a global company with executives based in the U.S. So that becomes -- and therefore, that's where they end and Susan will take you through. But all 3 in various ways have not fully supported the remuneration board. So Susan, do you want to touch on a few of the specifics of Stephen's comments.

Yes. And Stephen, thank you very much for the question. As we go through them, we ISS made it pretty clear that unless we had an Australian-based peer group of companies they were always going to struggle. They know very well that and acknowledge it in the same way around the world that if Xero was to have a U.S. listing, then they would apply their U.S. rules and it would be fine. On ownership matters and Glass Lewis, we are super grateful for the way they engaged with us. They've really leaned in to trying to help us with these challenges. They have different reasons for why they struggle to support. For ownership matters, it was the quantum of LTE, and I think you probably heard me in my address say that actually the percentage component of the remuneration structure actually hasn't changed. It has just been the benchmarking to the U.S. So nothing changed on that, but they couldn't get over the quantum of the LTE. But helpfully, they did put in their report that they would understand if our big shareholders would like to support us. Glass Lewis had a -- they were fine with LTE and the other pieces. They had an issue on the options grant and felt that it was something they couldn't get over. So you can sort of see we've got 3 differences going through there. On the New Zealand Shareholders Association and the Australian Shareholders Association, they ever recommend a vote and support, they are supportive of where we're at. And I know it wasn't part of your question, but it does go to perhaps the next phase. We actively engaged with our largest shareholders, and we have got significant positive support to providing local pay rates for our talented executive team regardless of where they are in the world. So the dilemma for us is to work through post this meeting, how we look to step forward. And in terms of what we will do, I think we're just getting these results now. We'll take it back to the boardroom, and we'll have a bit of a think of where we kind of go next. But you can be rest assured that same and style to engagement about working out sort of working widely with our owners and proxies to try and find a constructive way forward will be helpful. And I did say my address to finish on this point. Our heart and the home of Xero was founded in New Zealand, and we have never insisted that our Australian executives get paid on Kiwi-based pay rates. So we are struggling with the idea that our Australian pay rates suddenly dominate suddenly dominate the U.S. pay constructs. We just don't believe that that's the key to successfully delivering on our purpose of opportunity ahead of us. So thanks, Stephen.

Well, thanks, Susan. These are the challenges becoming a global company and look, I mean, I just reinforce what Susan said, we'll continue to active dialogue with our proxies and all our investors and work it through. But but we feel very strongly about the strategy we're on. Okay. Well, I hope that gives you some color, Stephen. Okay. Simon, are there any more questions on Resolution 5?

There are no further questions, David.

Okay. Well, look, we note the voting there. And we'll move forward. So now let us move on to the final resolution. And let me just remind you to cast your votes on each resolution 1 to 5. This section is the general questions that we'll now move to and add these general questions asked by shareholders. So let's get into it. So operator, are there any general questions at all?

There are no phone questions from holders participating.

Okay. Great. Well, thank you Simon, can you please read out the first question be by the online platform.

Thanks, David. We've received a question from Mr. Aaron Whittaker, who asks, we have seen proven reports that initiatives aimed at increasing diversity will lead to lower performance standards. We'll -- Xero commit to maintaining consistent performance and qualification standards for all candidates regardless of diversity initiatives.

Well, thanks for that question. And I'll pass to Sukhinder to make a few comments in moment. Let me make a few just general comments. We provide opportunity based on merit. We do not discriminate on the aspects of identity -- and we want to have a fair, inclusive, we don't want bigotry or biasness but we want high performance, and that means that we will always recognize Merit. Sukhinder, do you just want to make any comments at all?

Sure. So David, I want to double click on a couple of things that you noted. First of all, our job is to find the very best talent we can to prosecute the strategy. we drive towards capability and potential of any individual. We want to make sure our systems are fair so that everyone has an equal opportunity to, I would say, they participate in Xero's culture and performance, but we absolutely do promote higher on the very best capability we can find. And if anything, I think we are trying to bring into further alignment, our purpose performance and our compensation systems at Xero to recognize high performance. But we do believe overall that cultures thrive when they are inclusive and that performance thrives when you have diverse perspectives.

Great. Well, thanks, Sukhinder, and let me just reinforce, having this high-performance culture that I know Sukhinder said is a critical part of what we're doing. And we still do it in a human and fair way, and you can do both, and that's what we're committed to because that's in the best outcome with shareholders and the company going forward. Okay. So thanks, Simon. Next question.

Thank you, David. The next question comes from Peter Myles Barak, who asks, you have mentioned cybersecurity, a key item. What are your systems for backing up and continuing to provide online services in the event of natural disaster i.e., earthquake? Where are your data processing centers and what is your redundancy? How will you deal with staff in Wellington when the big 1 hits there? What is the earthquake rating of that building?

Okay. Well, there's a lot in there. I'm not sure I can get to all the detail of it, but I'll give it my best shot. I don't plan to be in Wellington when it hits. Okay. Well, we have a multilayer approach to protecting customer data, and that's always been the case. So we have -- I know that we keep data across various cloud servers who are managed by third-party providers like AWS. And so we do take a very active strategic architectural approach to make sure the data is spread. In terms of business continuity plans, as you'd imagine, that's critical part of what the audit committee reviews and we go through continuity plans, including on cyber attack. And we've had a few simulations, should we have a Cybertech which I hope we never have, and that would include natural disasters. But we're very conscious of that as we go forward. And of course, the big 1 is how we look after staff should there be a big event. Now the 1 thing I can't answer is I don't think I know the answer to the rating on the building, but I presume that if it's still standing that the Wellington City Council has approved it. But let me look at Mark, just from me, Mark, do you know?

No, I don't. But it would meet all legal standards of the Wellington and a lot of strengthening has been done and also it's a recently refurbished building as well.

Yes. So yes, thanks, Mark. So if that's a staquestion, we can get back to you on that going forward. So I hope that gives you a bit of a sense. But look, it is a critical component, but we don't have big data centers in Wellington. And I know all about that from my time at IBM when we used to have 1 at Baton and that was not a good place to have one. So that was a bit irrelevant. But anyway, let's go to the next question, Simon.

Thank you, David. The next question comes from Daryl Plimer, who asks, do you have a solution for body corporate financials in New Zealand? If not, is it something you would look at? The current systems, body corps I have involvement in are not good.

Okay. Well, it sounds like opportunity, barrel, but I don't know the answer. I'm looking at Sukhinder, and okay, and I'm going to let her answer because she just noted. So Sukhinder, over to you.

First of all, thank you, Barry, for the feedback on the question. So first of all, I would note that we're always up for product feedback. And I think it's fair to say that today, as you know, we're mainly designing in this strategic period for small businesses, 1 to 20. What we've noted is One of the segments we also serve broadly through our ecosystem is larger SMBs who use our ecosystem alongside Xero in order to extend some of the functionality we don't have today, and allow you to extend up into businesses that are much, much larger. And this helps solve gaps today that exist in our product 4 segments other than 1 to 20. But I would note that we love product feedback. Thank you for the feedback, as we think about how to better serve our secondary segments, including bigger businesses, we will take this on. Thank you.

Great. Thanks, Sukhinder, and Barrel. If you want to get some more information, we can get to you as well, be happy to. Okay. Simon, any other questions?

There are no further questions, David.

Thank you. Okay. Well, I think that brings us to the end of the meeting. So I'll pause if there's any more general questions that before we close the meeting, I'll just pause for a moment just in case there is any. So always an unusual pause. Simon or operator, any questions?

No questions received.

And no questions via the phone.

Okay. Well, that brings us to the end of Xero's 2025 annual meeting. Before I formally close the meeting, a quick reminder if you're intending to vote on formal business of the meeting, you should finalize and submit your votes now. Voting will close in 5 minutes time. As mentioned earlier, the results of the voting will be released on the ASX once the votes have been counted after this meeting. So look, my thanks to you all for attending Xero's Annual meeting today. It's an important part of our calendar, and we really appreciate your support and your feedback. So with that, I now declare the meeting formally closed. Thank you very much.