Xero Limited (XRO) Earnings Call Transcript & Summary

Good morning from [indiscernible]. Maybe I should say [Foreign Language] from New Zealand, and welcome to Xero's 2026 Annual Meeting. My name is David Thodey, and I'm Chair of Xero's Board and let me begin by thanking you for attending today's meeting. Now we're broadcasting from our Auckland office and let me go through the procedures. So the procedures for today's virtual meeting are intended to provide you the same opportunity to participate as you would at a physical meeting. This includes asking questions and voting using an electronic voting card. Now I'll be discussing this process shortly. Now in the unlikely event that we experience any technical issues that impact the meeting, I'll assess the circumstances and communicate further with you. If this isn't possible, you will be e-mailed instructions on how and when to rejoin the meeting. Now I think I'm informed by the company's Secretary that a quorum is present, and I now declare the meeting formally open. I'd like to start by introducing the Board and members of Xero's leadership team. Joining me from Auckland is Susan Peterson and from Xero's executive leadership team, our Company Secretary, Damien Coleman. Now joining us from our San Mateo office are our Chief Executive Officer, Sukhinder Singh Cassidy ; and our Chief Financial Officer, Clair Bramley and our Director, Anjali Joshi. Now we also have a number of people joining us online from New Zealand is Mark Cross, who's unfortunately unwell. So good morning, Mark. He's not speaking. And we are a global Board also from -- because we are a global Board, we also have a number of people joining from the U.S., our directors, Steven Aldrich. Brian McAndrews and from the U.K. a little bit later in the night, Dale Murray. Now John Robinson from our order Ernst & Young, is present and available in the room here to answer any relevant questions directed to him. And also, we have Xero's General Manager, Global and Regional Communications, Simon Fitzgerald who will read out written questions submitted by shareholders throughout the online meeting platform. So let me now turn to the agenda and the order events for today. Firstly, I'm going to say just a few words. And then we will hear from our CEO, Sukhinder and then we will 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. Now after that, there will be an opportunity for any general shareholder questions before I close the meeting. Now before I give my address, I do want to outline a little bit more about using this online platform. Now voting on the resolutions will be conducted by poll, and that poll is now open. So please vote by using the electronic voting card you should receive after clicking the get a voting card button. Shareholders can submit written questions during the meeting by clicking Ask a Question button. So I encourage you to submit any questions as soon as possible, including questions about any of the resolutions. Shareholders also can ask questions by telephone. Now to use the teleconference facility, shareholders should click the go-to web phone button, type in your name and click the green call button. If you wish to ask a question, dial *1on your keypad to indicate to the moderator that you wish to ask a question. The teleconference moderator will require your name. And 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, please refer to the virtual meeting online guide, which you can access through the download section at the bottom of your screen or from Xero's website or contact the phone helpline shown on this slide. Now to ensure questions reach us in time, I do ask that you submit them as soon as you can if you haven't already done so. Any general shareholder questions submitted prior to or during the meeting will be addressed after the formal business is completed. So I think that covers all the administration consideration for today. So now let me move to my address. Well, 2026 has been another year of significant change globally. AI as being on everyone's lips, a broad rerating of software sector valuations and ongoing geopolitical uncertainty have all shaped the environment in which we and of course, our customers operate. Now against this backdrop, Zero has delivered strong operating and financial performance. While we are disappointed with our share price performance over the past year and acknowledge the pain felt by our shareholders, the business is performing well. Now we've seen this broadly rating of SaaS valuations globally, alongside a desire for the market to see the financial returns from our Media investment play out, and this has put downward pressure on our share price this year. While neither the board nor management can directly influence our investors value sectors, what we can do is execute on our strategy. The Board is confident and committed to our current strategic direction that provide Xero with a large and expanding opportunity. We believe AI will be a positive for this company, not a negative. Growing internationally with a focus on the U.S., the U.K., Australia and New Zealand gives Xero large addressable market. And while we continue to expand our product offering beyond accounting into payments and payroll, an exciting future. This has been our strategy for the last 3 years. And of course, accounting payroll and payments are so fundamental to every small business. Now our continued investment in the U.S. through the Melio acquisition absolutely reflects this commitment, the 3x3 strategy. It is aligned with this strategy. We continue to build our strong global executive team, our global operating model and a global people strategy and a remuneration structure that reflects the caliber of people required to compete in these markets. Now so Kenda is going to speak to our results shortly. But I just want to touch on a few brief highlights. Execution against our 25 to 27 strategy has been encouraging, and our financial performance reflects strong demand for our products and services. Customer centricity remains absolutely vital as we continue to focus on our core product features along AI innovation reflected through the strong set of satisfaction and the deep relationship that we are enjoying with our partners. This was very apparent at Xerocon in London and just recently in Denver. The U.S. Xerocon held just last week in Denver reminds us of the importance of small businesses to the economy globally. We see this in our Xero small business inside Xero, which shows the underlying strength of small businesses around the world despite the geopolitical uncertainty. These insights using anonymized data from more than 1 million small businesses across 5 countries. They help us understand and also to advocate on behalf of the small business economy. Now we remain impressed by the resilience of small businesses navigating this complex environment and very proud of Xero's role in supporting them. That resilience reminds us why our purpose to make life better for people in small businesses, their advisers, communities around the world matters as much today as it ever has. And we're pleased with our progress adopting AI power both customer value and operational excellence, and Sukinder will talk more about that. Xero is delivering as the trusted financial operating system for the AI era so that we can meet our purpose of helping small businesses. That's what we do while remaining committed to our obligations around security and data integrity. Delivering on this strategy is only possible because of the quality and commitment of our people at Xero. We remain committed to incentivizing and retaining our key people, and we have engaged extensively with our shareholders on our remuneration approach over the past year and carefully considered feedback in designing this year's package. Our remuneration structure balances shareholder feedback on this topic with the continued application of a principle-based approach. This incentive structure is strongly aligned with the shareholder experience. Now Susan will speak to the detail of our approach and to the feedback that we received from last year's remuneration vote in her address. Now let me turn to sustainability. This remains key to our business, and we continue to evolve our reporting while Xero Limited is not subject to the new Australian sustainability reporting standards, we are voluntarily and progressively aligning our climate disclosures with IFRS S2. That's IFRS S2. This year, for the second time, we published a separate Sustainability Report covering our people our responsible use of data and our sustainability commitments. I'm also pleased to report that our climate-related targets were approved by the site's base targets initiative in the 26th year. Now let me turn to the Board. This year, we are sadly saying goodbye to Anjali Joshi. She will not be standing for reelection at this meeting after 3 years on the board. Anjali has brought deep global expertise in product and technology, and her experience as a professional director, has strengthened our Board through an important period of growth for Xero and I'm delighted to ask Angeli today just to say a few words. So Anjali, over to you.

Thank you, David, and to my fellow directors, our investors and the global Xero community. Thank you. It has been an absolute pleasure and privilege to serve as part of Xero's Board over the past 3 years. Xero has an exceptional team and a clear live purpose to make life better for people in small business, their advisers and communities around the world. I'm immensely proud of the resilience, operational discipline and product velocity we've demonstrated together. As a technologist, I have been especially inspired by Xero strides in AI, like the rollout of Xero's agentic platform, JAK, just our Seal and how this team balances rapid innovation with a deep commitment to data responsibility, sustainability and an inclusive purpose and performance-driven culture. While my journey as a Xero Board Director concludes today, I'm proud to have contributed to the company's journey. My belief in Xero's mission to champion small businesses remain strong. I leave the Board and Xero's leadership team in a strong position to continue to deliver on Xero's significant global opportunity. The future here is exceptionally bright, and I cannot wait to watch Xero's continued success and growth. Thank you.

Well, thank you, Anjali. And again, on behalf of the Board and shareholders, thank you for your wonderful contribution. We've really appreciated it. Right. We move forward. We hope to announce also a new Board Director in the next few months. The Board continues to review our composition and succession planning to ensure that we have the right balance of skills, knowledge and of course, the global experience that we required to support Xero's long-term opportunity. I'd also like to take this opportunity to thank my fellow directors for their contribution and commitment throughout the year. And I also want to reaffirm the Board's commitment to a positive working environment at Xero. That is so important, and we will continue to address any historic issues as they arise. This does remain a very high priority for us. On behalf of the Board, I'd also like to thank Sukhinder and the Xero leadership team for another year of strong performance. we're immensely grateful for the dedication and passion, both shown by the leadership team, but all of Xero's people, which is fundamental to Xero's success. I'd also like to thank you, our shareholders, for your ongoing support and confidence in Xero. So with that, I'd just like to bring this part of the meeting to an end. So what I'd like to now do is hand over to Sukhinder before we commence the formal business of the meeting. So Sukhinder, can I pass to you for an update on the business?

Okay. Thank you, David, and good afternoon from San Mateo. It's great to be joining you virtually for our annual meeting. Today, I'll cover Xero's fiscal 2016 results and themes, our strategic priorities and our outlook. Let's start with the results. Operating revenue grew 31% to NZD 2.75 billion, and adjusted EBITDA rose 18% to NZD 757 million. Revenue growth was sustained across ANZ, the U.K. and the U.S., with the U.S. accelerating and EBITDA growth remains strong even as we absorbed continued investment in Mileo. I'd like to highlight 2 key themes. First, the strong quality of our organic story. Organic revenue was up 21%, 19% in constant currency and adjusted EBITDA up 30%. Secondly, the achievement of a Rule of 40 outcome on an as-reported basis of 48.5%, showing the strength of both our revenue growth and the quality of our cash generation. On a pro forma basis, Rule of 40 adjusting for Mileo was 36%. Turning to strategic execution. As David has said, our 3x3 strategy is hitting its stride as we become the financial operating system for small businesses. A few product highlights from a standout year include: first, the launch of Xero bill pay powered by melon xero.com in the U.S., which gives SMB's full cash flow management in one place. The take-up has been strong with thousands of customers signing up and TPV growing nicely month-over-month. Secondly, key product launches that we achieved across the 3 x 3 include Xero analytics platform launch, the embedded payroll offering in the U.S. via Gusto. That launch of Xero Simple in the U.K. that supported the rollout of MTD for income tax by the government this year are just a few. Thirdly, we sharpened our go-to-market even further across direct and partner channels, and we further improved the Xero mobile experience to lift acquisition there as well. But where I want to spend the most time today is where we are materially moving the dial, our U.S. business and our AI innovation. Now in the U.S., on a Xero organic basis, revenue growth has accelerated from 13% in fiscal '24 and to 25% in fiscal '25 to 30% in fiscal '26 by doing exactly what we said we would with disciplined investment in our target segments. With Melio joining us, pro forma fiscal 2016 U.S. revenue reached 30 million NZD, up 50% and pro forma gross profit dollars reached COP 186 million, up 36%. That gross profit dollar trajectory is what matters most. We're building real scale in the world's largest SMB market while improving our average revenue per customer with payments. We remain on track for Melio's synergies from cross-sell into Xero's customer base and shared infrastructure and for run rate EBITDA breakeven by the end of H2 fiscal '28. On the back of this momentum, we've decided to step up our brand investment in fiscal '27 in the U.S. Now this is a deliberate sequencing decision as we really wanted those 3 x 3 jobs to be in good shape and complete before committing to a multiyear spend. It's a long-term measurable investment that we aim to see help with the performance of every channel. Now on to our biggest opportunity, the Agentic era. We're uniquely positioned to win in a time of unprecedented change, multiplying the value we deliver to customers with AI. Xero began as a system of record. But years ago, we started evolving into a system of action than decision-making. First with traditional AI, then with investments like sift Analytics and Global Payments and now Agentic AI takes that all to a new level. We think of RAI as accountable intelligence. Our commitment is that our platform that stays transparent, auditable and trusted by every user. We think that all underpins our position as the trusted financial operating system for the AI era with multiple layers of value we offer to customers. At the foundation of ROS is our infrastructure layer that connects thousands of bank feeds, tax APIs, regulated payment rails and other integrations. On top of that, it's our data layer, enriched verifiable, protected, secure financial data and the proprietary models built on 20 years of real-time small business transactions that power our own applications, our model tuning and those of our partners. Above that is our application layer, which includes, of course, our accounting, payments and payroll offerings and, of course, our agentic super agent, JAK, which offers model agnostic AI-driven features across our key jobs. And on top of all of that, in the value chain is our go-to-market layer, which supports around 5 million customers, 250,000 accountants and bookkeepers and an efficient distribution engine at scale. That layer is evolving, too. AI players are becoming new distribution channels, and we already rank highly in AI citations globally. Moreover, through our Anthropic and OpenAI partnerships and our newly announced Microsoft partnership, customers can now tap into Xero's financial intelligence directly inside these other productivity layers and it drives traffic back to our full operating system. Bringing this together, we are in a strong position to deliver value to customers through launching new AI features also. We are already seeing such great traction as we enhance JAKs and things like auto bank rack and launch even newer features like smart doc capture. This is resulting in deepening usage and increasing adoption across our customer base. Looking ahead, we're aligning AI value to how customers use it, bundling core capabilities into plans, offering add-ons for wider access and will test consumption-based pricing where it fits designed to drive adoption while reflecting the overall value we deliver. Our opportunity in the AI era is both powerful and exciting for both customers and internally. AI is not just something we are building for our customers. It is clearly reshaping how Xero operates internally as well, so that we can drive greater productivity and enable our people to move even faster. Today, over 83% of Xeros use AI daily, and our internal AI momentum is just as strong. 97% of engineers are using at least 1 AI tool, and AI developer tools are saving around 3.5 hours per individual per week and rapidly accelerating time to product launch. As an example, we recently redesigned and rebuilt our time sheets experience, completing in 10 weeks would have previously taken 6 months. This is just 1 example of a broader program we now have in place as well, which we call our citizen Builders program, where staff are asked to reimagine and rebuild workflows internally that we can use to leverage efficiency and increased productivity with AI. Now turning to the years ahead, we are reaffirming our FY '28 aspiration and our FY '27 guidance, targets that underscore our confidence in the growth strategy of the company and our ability to balance robust growth with operational efficiency. We have strong revenue momentum with a clear pathway to more than doubling group revenue from FY '25. Our pro forma Rule of 40 sits at 36 and is well on track to be back above 40 in fiscal '28. We continue to expect Melio to reach run rate breakeven on an adjusted EBITDA basis in the second half of fiscal '28. As explained in our fiscal 2016 presentation, we are now able to provide both a revenue and adjusted EBITDA guide for fiscal '27 specifically. Revenue is guided to be between NZD 3.62 billion and NZD 3.73 billion, supported by a balance between average revenue per customer expansion and customer growth, including some initial monetization of newer AI features. On an adjusted EBITDA basis, we expect to deliver between NZD 860 million and NZD 920 million in fiscal '27, including incremental U.S. brand spend of up to NZD 55 million. Now there's a higher historical weighting this year towards H2. This reflects the timing of our investment spend across CAC, the phasing of Melio breakeven trajectory and our normal H2 revenue seasonality. Our fiscal '27 outlook reflects the confidence I and the management team have as well as the Board in the Xero opportunity. We're a company that is well positioned to deliver in the short, medium and long term and create significant value for shareholders. We're excited to work together to capture this opportunity. Before I conclude, I want to thank everyone who plays a role in our journey, especially our zeros around the world who worked so hard and with purpose for our customers and partners. I'm really proud of the workplace we've built, and we'll keep working to make it even better. My thanks, too, to David and the Board for their support and hard work and to you, our shareholders, for your ongoing support. I'll now hand back to David for the formal business of today's meeting.

Well, thanks, to kind for that really great update about the business. So let's now move to the resolutions and voting for the 5 resolutions, which is now open and remain open for 5 minutes after the close of the meeting. Our Company Secretary has confirmed 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 outlined in detail in that notice of meeting and the notice will be taken as read. Xero's financial year '26 financial statements together with the auditor's report are now and all in the 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. Now I do want to stress Resolution 5 is a nonbinding advisory resolution as we voluntarily choose to put the Remuneration Report to vote with feedback to be considered by the Board when setting future remuneration strategy. Xero's share registry provider, MUFG, Corporate Markets, will conduct the voting by way of poll, and Julie Stokes, MUFG Corporate Markets will act as returning officer. Votes will be counted after the end of the meeting and results published on the ASX and Xero's website. shareholders or their proxyholder can cast their vote using the electronic voting card received after validating online registration. Now to validate registration, you'll be asked to enter your security holder reference some in or holder identification number in plus postcode if you're in Australia or country if you're outside Australia. To then cast your vote, click the Edit Card button. The proxy votes that have been submitted have been lodged on the ASX prior to the meeting and we set out on the slide shown for each resolution. For some context, the current number of Xero shares on issue is approximately 170 million shares. Shareholders have appointed the Chair of today's meeting, that's me, as proxy for approximately 135 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 undirected proxies held by me in favor of each resolution. Now the first resolution relates to the authorization of the Board defects the remuneration of Xero's auditor, Ernst & Young. So let's now go to questions. So operator, are there any questions from telephone participants regarding Resolution 1?

There are no questions on the phone line at this time.

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. We have not received any questions.

Well, thank you, Simon. As we haven't received any further questions, we'll now move to the next resolution. I did want to stress the proxy votes have been -- that have been submitted prior to the meeting for this residents are actually on the screen now. So let's now turn to Resolution 2, the reelection of directors. Resolution 2 concerns the reelection of Mark Cross as a Director of Xero. Mark has been on the board since April 2020, retires of this meeting and offers himself for reelection. The Board, other than Mark, recommends Mark to Xero Director and unanimously supports his reelection. He has been a strong contributor to the Board. So I'm now going to ask Mark to say a few words about himself. Mark?

Thank you, David, and thank you all for the chance to seek your support for my reelection as an independent director of Xero. I first joined the Board in 2020, and it's been a privilege to be part of Xero's journey since. Over the past 6 years, I've come to appreciate what drives Xero's success, discipline, focus and our people. This will be my third term, if I'm reelected. As many of you know, my executive career was in investment banking and corporate finance across New Zealand, Australia and the U.K. For the past 14 years, I've been a Non-Executive Director and Chair and Director roles across software, telecommunications, health care and funds management. That's given me exposure to a wide range of industries and governance settings and it continues to shape how I think about Xero's strategic position and what shareholders expect of this company, profitable growth and lasting value. I've chaired the Audit and Risk Committee for the past 5 years and remain a member of the People and Remuneration Committee. Those roles keep me close to what's important: financial performance, risk oversight and the people's strategy that underpins Xero's long-term capability. People drive customer outcomes, customer outcomes drive financial performance and financial performance drives shareholder value. Looking back over 6 years, a great deal has been achieved. Our products and platform are substantially stronger, and so are our financial results in both revenue growth and cash generation. Xero's 20-year track record of adapting through complex conditions while holding its focus on profitability, growth and innovation gives us the right foundations for the dynamic market we now and the opportunities and challenges it brings. I'm particularly excited about the tailwind that AI represents for us. First, to make Xero more valuable for small business customers and their advisers and second, to help our people work with more focus on productivity than ever. Xero is not standing still. We're turning AI to our customers' advantage as well as our own. Turning to our share price, we're not pleased with the performance over the last year. We continue to believe, though, that we have the right strategy and are executing well against it. Delivering performance remains our absolute focus I have real confidence in our leadership capability and our people to keep executing that strategy well. My fellow directors and I and our CEO and leadership team are clear on where we will compete and how we will win. I'm fully committed, and I have the drive and capacity to keep contributing effectively as a director. My focus is aligned with yours as shareholders. to see Xero achieve a significant global potential and create lasting value for shareholders and all stakeholders. With your support, I look forward to working with my fellow directors Sukhinder and the wider Xero team to deliver on that goal.

Well, thanks, Mark. And let me just reinforce all a great job you've done in terms of sharing the ordinal risk committee. Right. So let's now invite shareholders to submit any questions regarding this resolution. Operator, are there any questions from telephone participants regarding Resolution 2?

There are no questions on the phone line at this time.

Okay. Well, thank you. So let's now turn to Simon to see if there are any questions from shareholders who may have submitted written questions via the online platform. Simon.

Thank you, David. We have 1 question from shareholders, Stephen Mayne, who asks at the 2023 AGM. Chair David Thodey said there had been a 15% vote against the reelection of Director Mark Cross. Because proxy adviser ISS wanted to make a point about your failure to offer shareholders a nonbinding Ram report vote. Commendably, you headed this message and voluntarily delivered such a vote ever since. At last year's AGM, there was a stunning 48.7% protest vote against the Rem Report up from 22.5% in 2024. What did Mark Cross make of all of this? And has he suffered another protest vote today?

Well, look, thank you, Stephen, for that question, I will throw to Mark in a moment, but I do want to stress that as you know, we are not bound by ASX rules, but we do take it very seriously to take the feedback on board. As Susan went through, she addressed a number of those considerations from proxy advisers about the structure of the U.S. remuneration, which we are very committed to because of our strategy. But let me throw to Mark to see if he'd like to respond in any way. Mark?

Thanks, David. First thing I would say is, I think as your point, as a company, as an individual director, we take the voting very seriously about the message that it sends and I think and no doubt, like last time as a member of the remuneration committee. My vote has been impacted by the proxy advisers. I think all I can do is focus on doing a good job as an ASX-listed company, we obviously have strong ambitions globally, and our pay practices need to reflect the absolute need to match our strategy with the people to execute it and that require -- that rubs with some ASX-listed remuneration practices. We continue to listen to our shareholders and we'll do everything we can to match to the extent possible while still staying faithful to that strategy and the need to align that with people. So as I say, I hear the message loud and clear will continue to work hard for all shareholders.

Right. Yes. Thanks, Mark. And look, I think, as Susan said, we want to be true to our principles around remuneration true to our strategy. And look, we're going to continue to work this through. We're not the only company in the world having these challenges. So, Stephen, we'll continue to have that dialogue as we go forward. Anything else, Simon?

Thank you, David. There are no further questions.

Okay. Well, you will see since we haven't got any other questions, the proxy votes that have been submitted are shown on the board on the screen, and we will now move to the next resolution. We now move to that Resolution 3, which relates to the proposed increase in the nonexecutive directors' fee cap -- the proposal is to increase some ex annual fees that may be paid to all of the nonexecutive directors by NZD 1 million that's going from NZD 3.3 billion to NZD 4.3 million per year. Our policy is to review nonexecutive director fees annually and the fee cap every 2 years. Now we have not requested an adjustment to the fee cap in the past 3 years. The proposed increase in the director fee pool does not mean directors get an equivalent increase in fees. -- or that the whole of the new maximum amount will be used in the near future. Indeed, as was detailed in the notice of meeting, we have confirmed that Z will not be increasing director fees in this financial year -- the increase is intended to enable just flexibility around our Board succession to ensure that Zero can continue to attract and retain high-caliber non-executive directors, including in the overseas markets. I'd like to invite any shareholders to submit any questions regarding this resolution now. So operator, are there any questions from telephone participants regarding resolution 3?

There are no questions on the phone line at this time.

Okay. I will now take questions from shareholders who may have submitted written questions prior to the meeting by the online platform. Simon, any questions at all?

No questions received. David.

Okay. Again, you can see on the screen how the proxy votes have been submitted prior to the meeting for this resolution on the screen. Right. We now move to Resolution 4, which relates to the U.S. incentive scheme. Xero maintains the U.S. incentive scheme to enable Xero to remunerate relevant U.S. domiciled employees of all levels with equity-based incentives, including options or restricted stock units. The scheme was last approved in 2023 with a limit of 8.8 million securities. Xero is requesting approval of an additional 4.4 million securities under the scheme to support Xero's continued ability to attract and reward U.S.-based talent. If approved by shareholders, the new share allocation limit for awards granted under the U.S. incentive scheme will be 13.2 million ordinary shares for the purpose of certain exemptions to securities laws in the state of California and U.S. tax laws. Now with that, I'd like to invite shareholders to submit any questions regarding this resolution. So operator, are there any questions from telephone participants?

There are no questions on the phone line at this time.

Thank you, operator. Simon, are there any questions being presubmitted on the online platform?

There are no questions. David.

Okay. Well, thank you. Since we haven't received any further questions, we're going to move on to the next resolution. But again, you can see the proxy votes have been submitted prior to the meeting for this transition on the screen there. So we moved to the final resolution for today, which is Resolution 5. And as I mentioned, this is a nonbinding advisory resolution to adopt Xero's remuneration report. Now the remuneration report can be found on Pages 92 to 121 of 026 Annual Report. The resolution has been put forward voluntarily as a matter of good governance. Now while the result of the resolution will not bind Xero to the Board as we talked about before or have other legal consequences. The voting result will be considered by the Board in setting future remuneration strategy in the following year's remuneration report. So we'll continue to look at the feedback. The Board does not consider making a recommendation on this resolution to be appropriate given each director has an interest in the matter Xero has voluntarily put a voting exclusion in place relating to this resolution and the votes will be disregarded if they are cast by director, including myself, the CEO and the CFO and closely related parties. There are some limited exceptions to this exclusion, which have been set out in the explanatory notes in the Notice of Meeting that has been provided to you, our shareholders. Now before I hand to Susan, as Chair of the People and Remuneration Committee for some comments, I do want to highlight that this will be a fulsome response to much the feedback that we've received on this resolution. While this does extend the length of Susan's address, which we think is appropriate and today's meeting, we do think it's very appropriate to outline the Board's thinking in detail and to respond to some of the issues that have been raised. Now addressing remuneration governance with the rigor it deserves does not come at the expense of operational momentum. So we do want to make sure we keep focused on this business. Rest assured, driving Xero's business execution and long-term performance remains our absolute priority, but we are very conscious of remuneration. So Susan, over to you.

Look, thank you, David. But the last financial year can best be described as a year of strong execution against our strategy. As you've already heard today, operating revenue grew by more than 20%. Adjusted EBITDA reached NZD 757 million and free cash flow was NZD 560 million. We also continue to deliver strong rule of 40 outcomes as Sukhinder outlined. This performance has been underpinned by the leadership capability and passion of our 0 people who are motivated to fulfill Xero's purpose across the globe. As a New Zealand domiciled company that supports customers now in over 180 countries, we've made deliberate choices to ensure that Xero has the right capabilities to successfully deliver strategy and scale globally. Now before I go further, I want to acknowledge that Xero share price has not reflected the strength of our operating performance, and this has been extremely challenging for you as our owners. Xero share price has fallen significantly over the past 12 months. A large part of that decline reflects a global rerating of the software sector rather than Xero's own performance. but that reality does not make the experience any easier for your shareholders. We also recognize that there remains some market skepticism towards the strategic acquisition of Melio. The Board remains strongly of the view that this acquisition aligns with Xero's 3x3 strategy and positions us extremely well for growth in the U.S. market moving forward. Now turning to the remuneration report and our response to the 2025 shareholder vote. Our approach to pay at Xero continues to be guided by 3 principles: performance, the scope and criticality of the role and the location in which the individual is based. Location is the principle that generates the most debate. Xero's ambition requires talent who have built and run global technology businesses at scale. That talent is scarce and the reality is that the market for it is heavily concentrated in the United States. If we wish to attract and retain leaders with that experience, then we need to respect their expectation that their remuneration will be benchmarked against their home market. It is for this reason that the Board has not changed the underlying structure of our framework. It's important to note that almost all of our larger active shareholders expressed their support for our approach to pay local market rates. They realize it is not realistic to expect to be able to attract the talent required to execute Xero's global strategy by offering Australian pay structures to non-Australians. Guided by shareholder feedback, we have once again strengthened our disclosures in our remuneration report. For the first time, we have published the relative total shareholder return targets and payout ranges attached to the current year's long-term incentive rather than disclosing them after the fact. We've also expanded our commentary on how the Board assessed the CEO's individual short-term and center performance so that you're able to see the reasoning and not simply the outcome. It's been pleasing to receive positive feedback from both shareholders and proxy advisers on those changes. Turning to today's resolution, we have seen each of the major proxy advisers recommend against the voluntary resolution. Three themes have come through consistently across the proxy reports. The first is that incentive outcomes for the year should have been reduced to reflect the shareholder experience. The second is that 2 larger proportion of the CEO's equity vests on continued service rather than on performance. And the third is that the CEO's recent share sale together with the absence of a minimum shareholding requirement for short of what is expected of a company of our scale. Let me respond to each. Starting with incentive outcomes and shareholder experience. The short-term incentive is a structure that is intended to reward delivery on the strategic priorities during the financial year. The Board set ambitious targets, which is evidenced by the fact that even after a strong year of operating performance, the full year 26 scorecard outcome was only 94.2% of target. The short-term incentive also includes an individual performance multiplier of up to 1.5x to reward for individual relative performance throughout the year. The Board elected to award the CEO an individual performance multiplier of 1.2x to reflect a strong but not exceptional personal performance throughout the year. Adjusting the short-term incentive outcome based on total shareholder return, or TSR, would be inappropriate following a year of exceptional operating execution. Relative TSR is explicitly excluded from the STI framework because it's already measured and evaluated within the long-term incentive structure. Adding it also to the STI would create a double penalty effect for the same metric, which proxy advisory firms caution us explicitly against doing. By contrast, the long-term incentive structure is intended to incentivize sustainable value creation over time for shareholders. The performance metrics in the long-term incentive include both operating performance and relative total shareholder return, and this is measured against the mCloud index. So putting aside the principle generally applied by proxies, I don't like Boards applying any form of discretion. The key reason why the Board did not apply downward discretion in this case is because overriding the long-term incentive outcome ignores 3 years of consistent performance. From April 2023 to March 2026, Xero beat its growth targets and ranked the 64th percentile against the mCloud Index. Overturning that is based on short-term stock volatility unfairly dismissed 3 years of progress. But that said, if the Xero share price doesn't recover, future performance-based payouts will decline, aligning executive pay with a shareholder experience. Moving to the concern that a large proportion of the CEO's equity vests on continued service rather than on performance. We need to acknowledge that service-based equity is market standard in the U.S. tech sector remuneration packages with a balance between service and performance-based equity being 50-50. This is market standard. Xero needs to respect this market reality effort wishes to secure a U.S. talent. Despite this, our Xero executives have accepted a structure that is 40% service and 60% performance equity and their attempt to demonstrate respect for ASX pay expectations. Finally, the Board acknowledges the frustration regarding Sukhinder's recent year sale, and we take the feedback seriously. Sukhinder informed the Board that shared personal tax obligations that required cash and she needed to sell shares. We should note that she continues to hold a substantial ongoing stake in Xero including 586,000 time-based and performance-based RSUs that have already been granted. It is also worth noting that as a U.S.-based executive, Sukhinder is accustomed to the U.S. practice where CEO's total shareholding is calculated based on both the combination of unvested and vested shares. Nevertheless, we recognize that it is reasonable to expect the Chief Executive of a company of Xero's scale to build and maintain a meaningful personal holding. The Board has approved the introduction of an executive minimum shareholding scheme that will require the CEO to build and maintain a stake of 5x annual base salary within 3 years. Now let me turn to the change to the CEO's remuneration that was announced earlier this week as part of our normal annual remuneration review process. The Board considers regular engagement with shareholders -- shareholder representative groups and proxy advisers to be an important part of our good governance. While different investors may have varying perspectives, this engagement process provides an important opportunity for feedback. Over the past few months, we held over 30 meetings with our shareholders to seek their thoughts on CEO compensation review, acknowledging the accelerating market for packages being paid by -- for global tech talent against the backdrop of the re-rate of the 0 share price. It was pleasing to hear shareholders support for Sukhinder and specifically the strength of execution has been delivered under her leadership. There's also strong support for Sikhinder to be provided with an annual remuneration review and a number of major shareholders acknowledge the need to adjust your compensation package to align with relevant benchmarks given performance. All shareholders made it clear that they did not want the Board to reprice cancel or replace the existing options grants. They also ask that no further option grants we made to the CEO. In response, we confirm that the existing CEO options grants remain unchanged and and there hasn't been nor is there intended to be any new options grants for the CEO. Shareholders also Quite understandably, sought confirmation that the comparator group used for benchmarking compensation remains appropriate given the change in Xero's share price. The Board used independent advisers to provide market data and views on our comparative peer group based on our objective methodology, which you can see fully disclosed in our remuneration report. Given the share price decline, -- the Board tested the comparative peer group twice this year. The outcome of these reviews confirmed that our benchmarking peer group remains appropriate to film compensation decisions. The outcome of the benchmarking process of CEO compensation showed that the CEO's total target remuneration set below the 25th percentile. Considering shareholder feedback, the strength of the operating performance and our strategic priorities, the Board decided to move the CEO's total target remuneration to the 50th percentile or market median of the U.S. peer group. It is important to note that total target remuneration does not translate to take home or realizable pay in the same year. Due to the vesting profile of the package, approximately 60% of the full year 2027 total target remuneration vests in 3 years' time. This means that until then, the CEO's realizable pay is expected to be materially below total target remuneration. For example, we expect full year '27 realizable pay for the CEO to be around USD 4.4 million. So to wrap up, I would like to acknowledge the votes we've received today against the voluntary resolution around our remuneration report. It is clear that the poor share price performance for the last year has materially influenced this pod outcome, and we respect and understand the strength of this feedback. As a Board, we seek to make decisions to set Xero for sustainable long-term success. This requires us to be principal based in our decision-making be adaptable to changing circumstances and to stay focused on supporting our customers to be more successful. While some might be tempted to react to short-term challenge, our approach has been to remain focused on growing the business, whose economic value is supported by genuine and sustainable economic fundamentals. Our ability to attract and retain the global talent required to enable this purpose has been core to serious success to date and will continue to be core to Xero's ongoing success. The votes cast today and the comments that have been provided to us will be carefully considered by the Board in setting future remuneration strategy and preparing next year's Remuneration Report. I'd like to thank my colleagues on the People and Remuneration Committee for their support and dedication through the year. And I'll now hand back to David.

Well, thanks, Susan. And I think you can see the there was a very fulsome explanation, but also the amount of discipline and regular that's gone into thinking through some of these challenging considerations. So thanks, Susan, and also the Remuneration Committee. So now I'd like to invite shareholders to submit any questions regarding this resolution. So operator, are there any questions from telephone participants concerning Resolution 5.

There are no questions on the phone line at this time.

Okay. Well, thanks, operator. right, Simon. I'm okay to take questions now from shareholders may have some of the written questions before.

Thank you, David. There are no questions at this time either.

Okay. Okay. Great. Well, look, we'll then move on to the next resolution, but I do just want to say that we do take the feedback very seriously. And you'll see the results up on the screen. And as Susan said, we'll continue to have an active dialogue as we go forward Right. We now note that we'll move to the general business element, and we're happy to take any -- some time to answer any general questions that are on shareholders' minds. So Operator, let's go to you firstly. Are there any questions at all from people on the phone.

There are no questions on the phone line at this time.

Okay. Well, I know that we have a few online questions. So Simon, let's go to you now, and we'll work through the questions.

Thank you, David. So the first question comes from shareholder, Gregory Agnew, who asks Xerocon is obviously an amazing place to learn the latest about but shareholders do not have access to any of those speeches. Is it possible to put the speeches online so shareholders can learn from the speakers?

It's a pretty good idea. I did say there will be some considerations around that and which ones we can put up there. But can I throw to Sukhinder, are there any of the product or the announcement beds that we can put online. I know some of them would be not locked in. Yes.