Xero to contain cash burn as first-half loss widens

See also: Xero seems to have achieved a sustainable stepped-up growth rate in US

Xero posted a wider first-half loss even as revenue increased 71%, and says it wants to maintain the current annual cash burn through the rest of the year.

The cloud-based accounting software developer is foregoing profits to expand sales.

Xero posted a loss of $44.3 million, or 33c per share, in the six months ended September 30, from $24.5 million, or 19c, a year earlier.

Revenue rose to $92.9 million from $54.3 million a year earlier, of which subscription revenue climbed 72% to $85.9 million. Gross margin increased to 74% from 67% a year earlier.

Last week Xero [NZX: XRO] reported a slower quarterly cash outflow in the three months through September, lifting customer receipts at a faster pace than its hefty wage cost.

It generated an operational and investment cash outflow of $88.4 million in the 2015 financial year, a level it wants to maintain in the current year.

"Xero is focused on containing its full financial year cash outflow to similar levels to the prior financial year," chief executive Rod Drury says.

"This growth, as well as the rigour that we have established within the business positions Xero for long-term value creation."

The company has been a pioneer on the local stock exchange for software-as-a-service firms forgoing short-term profits in a bid to create a business that can thrive on the global stage.

It has attracted major US investors happy to keep its coffers full, pumping in another $147 million in March this year. It had a closing cash position of $224.5 million.

The shares rose 2.8% to $18.25, the highest level since July 27, and have increased 3.4% this year.

Xero increased total subscriber numbers 60% to 593,000, as it more than doubled clients to 47,000 in its key market of North America.

Australian customers rose 66% to 262,000, New Zealand gained 37% to 163,000, and UK clients increased 67% to 102,000. Customers in the rest of the world advanced 73% to 19,000.

That translated to a 69% lift in Australian revenue to $43.4 million, a 39% increase in New Zealand sales to $21.4 million, and a 98% jump in UK revenue to $16.4 million. Revenue in North America more than doubled to $7.5 million, while sales from the rest of the world rose 105% to $4.1 million.

Annualised committed monthly revenue, Xero's favoured metric for measuring sales, climbed 65% to $218.2 million, and the company grew headcount 32% to 1312 staff from the same time a year earlier.

(BusinessDesk)