Xero Limited Aktie

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.

Sure. Yes, let me pick that up. We do do market announcements around Xerocon around all of our product releases. We also generally make available, I think, the main stage keynote, on streaming. So the main stage, the first day is available on streaming if you -- and I think it's available online, and that's a great way to hear our major announcements as well as the releases we do around every Xerocon.

And are they still online now Sukhinder so people could [indiscernible]?

I'm sure we can find them and repost them if required. Yes, they should be.

Great. Well, let's get that -- yes, we'll get that address to our shareholders. Yes, it's great. Next question.

Thank you, David. The next question comes from Peter Barako, who asks -- you are asking shareholders to increase remuneration for directors and employees. This is at a time when the share price has been tanking and I'm personally concerned that we are at risk of a takeover. It looks like the Melio strategy is showing promise, but it is not there yet, justify why we should approve these increases before this strategy has delivered i.e., why directors and employees should be rewarded before shareholders are?

Okay. Let me -- there's quite a bit in that question, Peter. So firstly, no increase to directors' fees, just the full. So what we're doing is just giving us some flexibility to bring on some directors from other jurisdictions where often you have to pay more. So that's -- in terms of the increase in management, I mean, Susan went through that in quite a bit of detail. The reason we're doing it, we, firstly, the operating performance of the business is very strong, and we do benchmark to the U.S. and at the 50th percentile. So we're just keeping our executives right in line so we can really attract good people. But Susan, do you want to add anything to that?

Yes. No, I think you've answered it really well, David. I think we've really got a focus in terms of the operating performance in terms of how we reward and acknowledge our people for that. And then in terms of the Directors people, I think we're very clear in the notice of meeting that there's no intention for any directors to have any fee increases in this year to show solidarity frankly, for the position that our shareholders are in.

Yes. And so then to the other questions, I mean, I note your comment on takeover. I can't really make any comments on that. That's really the market would be the market. In terms of the Melio transaction and incentivizing management, I want to be very clear, we have a plan for Melio, and that -- the realization of that value is included in the go-forward metrics around LTI and now are included in the STI as well. So they haven't been really recognized for anything in the last year because that was the operating performance of the year. Obviously, there's been some impact on the share price and everyone has taken a hit on that. And on the go forward, now there is an expectation that investment does yield the returns that we are looking for. So all good questions, Peter. Thank you, but I think they are our response. Yes. So Simon, back to you.

Next question comes from shareholder, Mr. User. Basudeb gosh, who asks the share price of Xero is gradually going down. I would like to know what the future outlook of this share is and if the company is taking any corrective measures to improve the share price?

Right. Well, thank you for the question. We'd be interested too. Look, we are very committed to doing what we can do, which is execute on our strategy that is yielding results. As Susan said and I said and also Sukhinder, markets rerate around certain industries, sometimes on reality, sometimes on speculation, and we can't do much about that. But what we can do is continue to grow top line growth, drive efficiency, serve our wonderful customers partner with our partners and make a difference every day. And that's what we're doing and we'll continue to do. The 3x3 strategy is very clear. We have wonderful progress around AI enablement within the organization. And I'm delighted to see the great functionality being delivered to our bookkeepers and accountants and also to our small business customers. So we are very focused on that, and that's going to be the best way to get improvement in the share price. Back to you, Simon.

Thank you, David. The next question comes from Stephen Mayne again, who asks, please summarize the recommendations by the various proxy advisers, including on this proposed increase in the Board fee cap. Which of them recorded a vote against, what reasons did they give? And did this translate into material protest votes on any of the remuneration resolutions?

Well, thanks, Stephen, for that question. I mean, Susan specifically addressed that particular issue. And as she said, partly it's been the share price decline, part, it's been the structure of the remuneration that we've seen and partly has been the share sale. But Susan, do you want to comment any more?

Look, I did summarize the 3 consistent things that came through the proxy reports, which weren't relevant to this particular resolution. What I am aware of is we've had feedback from the New Zealand Shareholders Association that they would have liked us to included in the notice of meeting more detail effectively on the data which substantiates the increase in the amount being requested and also how much is really a buffer in terms of the quantum required, but also a buffer and more explicit information. We've had that conversation. We've agreed to take that on board for next year. But you can see in our remuneration report a full disclosure of our peer group that's used to benchmark and other relevant matters.

Yes. Thanks, Susan. And look, there is that underlying challenge of having U.S. executives when you're listed in Australia. And I think that's the other big 1 that we're going to continue to discuss with proxies and our investors as well Okay. Simon, back to you.

Next question comes from Ms. Sheila Kelly, who asks profitability is such that why not reward shareholders with the dividend even if initially it is more modest due to business investment?

Well, thanks, Sherlan, for that question. And we refer to that as capital management and what we do with our free cash. the stage of the company is that we are in a high-growth phase, and hopefully, that will continue for a few more years. And when you're in a high-growth phase, the returns to shareholders over the longer term is to invest back in the organization rather than paid dividends. But look, we look at it every year. We'll continue to look at it. But at the moment, the judgment of the Board and the management team is that if we can get a better return to shareholders by investing in the company, building new product, driving new access into new markets and continuing to see where we can lift our share in serving our wonderful small business customers. So thanks for the question.

Next question, David comes from Stephen Mayne again, who asks Ernst & Young took over as external auditor in October 2015, replacing PWC. Have we run a competitive tender for the audit in the ensuing 11 years? And when are we next planning to run a competitive tender? Don't talk about partner rotations after 5 years. We all know that is the law. This is about audit firm tendering and good governance on procurement of this important service for shareholders. U.K. law mandates and audit tender every 10 years, do we adopt that as best practice? If not, why not?

Well, thanks, Stephen. Look, we are following pretty much ASX guidelines at the moment. So we continue to review the performance of the order every year. and we look at the performance of both the lead director and their contribution to the organization. But look, Amy, I have personally been involved with the ASX and looking at what is the best standards here. And I'm sure the process is going to evolve over time. But at the moment, we feel comfortable with the support we're getting from Ernst & Young, and they're doing a good job. Okay. Let's -- so look, that's the answer, Stephen. So we will take -- continue to have that dialogue as we go forward. So Simon, back to you.

Thank you, David. The next question comes from Omega Holdings Proprietary Limited, who asks, I do not understand why on earth with the Chief Executive, so all her shares as she believes the company is doing well. I'm sure she had other assets that could be used to pay her tax.

Right. Well, look, thanks for the question. I think that we've we pretty much answered that. But look, she has not sold all her shares is the first point. She has, I think, Susan Sisi's 586,000 unvested but within time and performance-based shares going forward and a large number of options. And look, I do want to stress Sukhinder approached me as Chair about the selling off of shares. She had a tax requirement, and she needed cash. Now remember that her remuneration is a small fraction of total remuneration is in cash, and therefore, there's a liquidity consideration. But let me throw to Sukhinder to make any comments on that. So Sukhinder.

Sure. Thank you, David. Yes, as you noted, first of all, I hold almost $1.5 million in equity instruments between options vested, unvested and shares in Xero. So I am certainly a holder of a large position in the company. I think, as David noted, as a KMP, we -- and as a U.S.-based KMP in particular, we do need to manage, and I do need to manage liquidity at probably 1 or 2 windows a year in which I'm not in possession of material nonpublic information. That most typically happens right after annual earnings, where there is a small window in which I can realize any liquidity needs I have, and in this case, certainly significant tax obligations.

Right. Thanks, Sukhinder. Yes. I mean the other thing that Susan mentioned is we have put in place a minimum shareholding requirement, which we think is good practice and we've added that going forward. But as Sukhinder said, she still holds a large number of unvested shares. And in the U.S., that is usually considered as part of a CEO's commitment to the organization. However, we have changed the policy. So hopefully, that won't be as relevant going forward. So Simon, back to you.

Thank you, David. The next question comes from Stephen Mayne, who asks while virtual AGM soupe in terms of attending 300-plus meetings a year best practice is to run a hybrid meeting with a physical component as well, so shareholders can grow the directors in person. We'll chair David Thodey undertake to hold a best practice hybrid AGM next year, like most dual-listed New Zealand companies do. Does he have a problem with hybrids because he also chairs Ramsay Healthcare, and they run physical-only meetings in Sydney which is even worse than a virtual AGM. Get with the program, please, David.

Okay. Thanks, Stephen. I'll work on getting on with the program. Look, the consideration we got with Xero is that we have Three Board directors in the U.S., 2 executives -- senior executives in the U.S. and 2 in New Zealand one here, and myself in Australia. So the logistics of getting everyone together is both time-consuming and very expensive. So it's a -- there's pros and cons. I mean, I think we would prefer to have a face-to-face meeting if we could. But this seems to be the best option on balance. And it does, as you rightly say, give people access to us and ask questions. But -- so look, I'm sorry, Stephen, I don't think we're going to be having a hybrid meeting in the short term. But happy to pick it up with you separately, if I'm sort of missing anything, but that's sort of the logic of why we do it.

It is very company specific. I mean Ramsey the other hand, all our directors, except one, is in Australia. And that Board Director is actually just retiring. So it's a completely different situation. So Simon, back to you.

Thank you, David. Next 1 comes from Stephen Mayne again who asks that the AFR reported the following this week. 0 investors have been particularly irritated by the fall in the stock price and Syncasity share sales. In June, as David Thodey met with investors to convince them of the new Ram terms, Syncasity sold more than $4 million worth of shares, citing he need to pay tax. In July, she sold the rest of her shares in the company for the same reason. Could the CEO please respond to these criticisms, why did you sell so many of her shares? Couldn't you have taken out a loan to pay the tax?

Well, thanks, Stephen. I think we've sort of gone through nearly all those questions. I'm not sure we can add much more. Let me go to Susan first. Is there anything you think we can add I mean, because I mean we're trying to be as fulsome as we can. Is there anything we missed?

I really -- I've gone through it in my speaker I think Sukinda talked about her perspective on it. You've outlined the process we follow as a company. I mean Sukhinder, the can anything else to add? I'm not sure there is too much to say. .

Yes. I mean, Sukhinder, do you anything you want to add to what you've already said?

Yes. I think we've covered it all. I continue to be a very large holder of instruments in the company, again, $1.5 million in options and equity. And I would continue to say it might be $4 million, I think, in USD terms there is a need to manage certainly large tax obligations on my end.

Yes. Great. But Stephen, I do -- as Susan noted, the optics wasn't great. And but there were considerations behind it, and we don't think that what you would take out of that, which would be the CEO not being committed to the company is appropriate. But we have put in place the minimum shareholding, and so we won't get into that situation again. So I think -- well, I will take it on myself, I could do better next time. So I will do that. So Simon, anything else?

A question from shareholders, Susan Robinson, who asks, as an investor and customer I am concerned about the continued price rises we get every year and don't feel I'm getting increased value. The price rises and lack of increased value are making these seriously considered other providers. also increasing subscription prices every year is not a sustainable strategy for revenue growth as SMEs are under cost pressures too.

Well, Susan, thanks for your comment. And look, we feel very strongly around the price and the value of the product should be directly related. And it has been a period of enormous inflation where we've tried to cover a lot of the wage inflation that we've seen, as you would have seen in the market as well. But we've also delivered enormous functionality in the product. And we continue to review our pricing strategy to the value that we're creating. But look, we should follow up with you personally to sort of see what -- whether we're really getting the value -- you're getting the value that we think is in the product. But I might throw to Sukhinder because Sukhinder, I know that you look at this in a lot of detail, and you're trying to make sure that we're delivering as much value as we can and don't want people to feel that they're not getting the right return from their investment. So over to you.

Yes, sure, absolutely. And I think it's an important question. So we continue, as you noted, to keep adding value into the product. But what we also do every year is look at every SKU by market, the competitive pressure, the macro environment, and we try and find the right balance every year between adding value into the product and managing a price that is great for the value. In recent years, as an example, certain SKUs at Xero have not changed their price, while others we have moderated from previous years. So we continue to manage this SKU by SKU, market by market, segment by segment to try and make sure we're matching value to the features we deliver for the segment in question. And we look forward to continuing to find that balance and delivering overall a valuable product for its price point.

Yes. Thanks, Sukhinder. So look, Susan, if you like you would like to follow up with you and sort of make sure I mean I appreciate some of the value in the product expense reconciliation has been great. It saves a lot of my time, which is really good. So anyway, Simon. Any other questions?

Thank you, David. That concludes all the questions we have received.

Okay. Well, look, firstly, thanks to shareholders and the questions. I mean they're always appreciated, and we're on our journey, but this does bring us to the end of the 26th Annual Meeting. But before I formally close the meeting, a quick reminder that if you are intending to vote on the formal business of the meeting, you should finalize and submit your votes now. Voting will close about 5 minutes time after we close out. As mentioned earlier, the results of the voting will be released on the ASX once the votes have been counted after this meeting. And look, I do want to thank you all shareholders for attending the annual meeting today. We appreciate the time you invest in your support and we look forward to another strong year. And hopefully, the markets will be a bit more favorable to us, but we continue to execute our strategy. But I will now declare the meeting closed. Thank you very much for your time.

Thank you for standing by, and welcome to the Xero Limited 2026 Full Year Results Conference Call. I am joined by Xero's Chief Executive Officer, Sukhinder Cassidy; and Chief Financial Officer, Claire Bramley.[Operator Instructions].

I would now like to hand the call over to Sukhinder Cassidy, Chief Executive Officer of Xero. Please go ahead.

Good morning from Sydney, Australia. Thank you for joining our investor briefing today covering Xero's financial and operating results for the full year ending the 31st of March 2026. I'm Sukhinder Cassidy, CEO of Xero, and I'm joined by our CFO, Claire Bramley.

In FY '26, Xero delivered strong revenue growth of 31% adding more than 500,000 new customers and generated $757 million in adjusted EBITDA. We did this while closing and integrating [ Milo ], which speaks to what this business can do when strategy and execution are alive.

There are 3 key themes to our FY '26 performance. First, sustained revenue performance, strong EBITDA outcomes and a U.S. business that is now clearly accelerating. Second, payments and AI innovation both scaling fast, which is deepening customer penetration and delivering real measurable value for users now and has tremendous potential going forward. Third, continued capital and operational discipline that underpin our FY '26 execution and gives us confidence in our ability to deliver in FY '27 also.

Okay. Let's take a look at our financial results specifically. Operating revenue grew 31% to $2.75 billion and adjusted EBITDA rose 18% to $757 million. Claire will take you through the details shortly, but I want to draw out 2 things here. First, the quality of our organic story. Organic revenue growth was 21% or 19% in constant currency terms and organic adjusted EBITDA growth was 30%. That is the underlying engine firing at Xero and delivering strong returns.

Second, the Rule 40 outcome was 48.5%. This shows both the strength of our revenue growth and the quality of our free cash flow generation. On a pro forma basis, adjusting for the full year impact of Melio, it was 36%. I'll touch on this later.

Now turning to regional performance. Our flagship markets in Australia and New Zealand continue to deliver robust growth. ANZ revenue increased 18% to $1.39 billion or 17% in constant currency terms, supported by a 7% customer growth to $2.75 million and a 9% increase in average revenue per customer to $48.89.

Australia was the primary growth driver for revenue growing 20%. Customers were up 9% year-on-year, adding to further 165,000 net customers. This reflects both smart execution and the structural expansion of our per customer revenue opportunity. We are excited to launch a new ultra subscription tier in Australia in the near future. This is focused on providing more complex midsized customers with core accounting functionalities to support their operations.

New Zealand grew revenue by 10%, with net additions of 21,000 customers, up 30% year-on-year. Despite this being low growth relative to our less penetrated market, it is double the level of growth in small business creation over that period. This shows our ability to lead in a highly penetrated market by digitizing small businesses and expanding our services. Our International segment saw a step change in scale this year as we expanded our footprint in the U.S. with the addition of Milo to the group. International revenue grew 47% to $1.36 billion. Excluding Melio, organic revenue growth was a strong 25%, reflecting the acceleration of our global growth engine across multiple markets. The U.K. delivered 26% revenue growth and 14% customer growth with net additions of $166,000, benefiting from adoption of MTV for income tax in the second half of the year.

In the U.S., organic growth accelerated to 30% through disciplined execution in target segments and improving product market fit. And then, of course, Melio's payments contribution was significant with combined revenue reaching $332 million, up 240%. I will discuss the U.S. performance in more detail later.

Our other international markets delivered another period of good revenue growth with revenue up 21%. Total customers grew 12% year-on-year with net additions of 44,000. South Africa was the largest contributor. The pattern across international is clear: execution improving, momentum building and the U.S. opportunity coming into fruition. So to quickly summarize the financial outcomes of this year.

We have consistently delivered strong EBITDA growth. This is translating to significant free cash flow, which is up 5x in the last 4 years, and we've continued to deliver a Rule of 40 outcomes. We anticipate it falling below Rule of 40 on a pro forma basis as we incorporated Melio, and we're clearly on track to get that back above the Rule of 40 by FY '28. We're already at 36% in FY '26 and which shows you we're well on track.

I'll now pass to Claire to take you through the numbers in more detail.

Thank you, Sukhinder, and good morning, everyone. Fiscal '26 has been a strong year for Xero. In my first year as CFO, I have seen consistent execution across the entire business. We continue to deliver robust revenue growth, improved monetization and accelerate profitability. The financials speak clearly to this, so let me walk you through them. Operating revenue reached $2.75 billion, up 31% year-on-year in headline terms and 21% on an organic basis, which excludes the impact of Melio.

Xero remains a consistently high growth business across a global portfolio with a recurring revenue base that continues to deliver and consumption-based revenue streams, which are expanding rapidly. AMR closed the year at $3.3 billion, up 26% on a pro forma basis. This is a strong forward signal of where the business is heading.

Customers reached 4.90 million at year-end with 506,000 net additions across the year, up 11% in headline terms and 10% on an organic basis. As a Kinder outlined, the acceleration in our international segment is gaining pace.

ARPC reached $55.44 at the group level, up 23%, including Melio and 14% on an organic basis. Melio's contribution here shows the strong improvement [ VLP ] delivers to our customer unit economics. Gross profit reached $2.31 billion, up 23% year-on-year or 21% on an organic basis, generating an additional $436 million in gross profit dollars. We are focused on absolute dollar growth, not margin percentage. And on that measure, we are clearly delivering. The 5.1 percentage point reduction to 83.9% is entirely the impact of incorporating the payments led media business. On an organic basis, gross margin held at 89%, consistent with prior years.

Moving to the ARPC bridge where Melio has delivered a step change. We have an average revenue per customer measure as this captures the full Melio value and demonstrate that Xero subscription model is linked to the customer or business entity, not the number of seats.

Headline ARPC increased $10.36, up 23%. 5 drivers explain this movement. Firstly, price changes were the largest organic contributor reflecting the value we have added through new features and capability improvements. Importantly, we delivered this growth while holding prices flat on our entry-level ignite plans in Australia the U.K. and New Zealand throughout fiscal '26.

Our sophisticated pricing strategy aims to get customers on to the right plan and maximize long-term value. U.S. mix was a strong contributor with direct channel momentum and increased focus on value-based selling, driving business addition growth. This was partially offset by changes to payroll inclusions in Australia and making that digital mix headwinds in the U.K.

Platform attach and other reflected continued growth in invoice payments the accounts receivable side of our payments business with adoption increasing across our 3 by 3 markets and supporting strong TPV growth of 26%. Melio added $4.24 to ARPC at the group level. In the U.S., this contribution is a more significant $50 uplift per customer. This illustrates the structural benefit of the build to pay model, higher revenue per customer, driven by consumption-based transaction revenue, not subscription pricing alone. Sukhinder will come back to this shortly.

Finally, FX movements were a tailwind, largely reflecting the benefit of a stronger Australian dollar. MRR churn for the full year was 1.14%. The close to the long-term pre-pandemic average of 1.15%. The recent uptick is driven by mix, not a change in underlying customer behavior. As we scale our direct channel, we are widening our funnel, which does result in acquiring some customers who churn at higher rates than those from our accounting and bookkeeping partners. That is a deliberate strategic choice.

Direct channel customers generate stronger absolute LTV because ARPC is higher. Cohort can gives the cleanest read on Platform Health by excluding acquisition mix effects. This metric was largely flat year-on-year at 0.81%. Confirming that our existing customers remain highly engaged.

Cohort can gives us the confidence to keep investing in direct channel acquisitions. These customers come in at higher ARPC and as they start using the product, they stay. You can see the benefits of this higher ARPC and scaling of customer growth without compromising efficiency in LTV. Total LTV expanded $3 billion or 17% to reach nearly $21 billion. These metrics exclude Melio.

Total CAC per gross add was $735, up only slightly year-on-year, supporting a healthy payback period of 14.4 months. LTV is up CAC is stable and payback remains efficient. International LTV per improved to 3.5x, an early signal that our focus on higher value customer acquisition is working. It's important to highlight as we begin investing in U.S. brands. This will create a near-term drag on international LTV to CAC ratio, which is the right trade-off. By building our brand, we aim to create a more efficient acquisition engine for the long term.

Operating expenses as a percentage of revenue, excluding transaction costs, were 70.5% in line with guidance and down from 71.7% in fiscal '25 and 73.3% in fiscal '24. The trajectory is consistent and its discipline is compounding.

Revenue per FTE reached $571,000, up 21% year-on-year with SCE flat on an organic basis. AI is already improving productivity across product development and go to market, and you can see that directly in this metric. Our conviction is that AI enables us to do more with what we have. meaning that we can drive strong growth without increasing headcount, all while accelerating product delivery, creating optionality for reinvestment, including U.S. brand investment and still delivering operating leverage. Fiscal '26 clearly demonstrates we can do all 3.

Moving to the individual cost lines. Across all 3, we delivered operating efficiencies on an organic basis. Sales and marketing grew 17% organically, reflecting a deliberate increase in performance marketing investment in our digital channels. particularly in the U.S. and U.K. We are now very good at targeting the right customers in the right markets as the efficiency metrics demonstrate.

Product design and development grew 14% organically or 18%, including capitalized amounts as we continue to invest in global talent and domain expertise. The higher capitalization rate in fiscal '26 is a direct consequence of strong product velocity with more features being delivered at a higher cadence, increasing customer value and our ability to monetize.

On G&A, the increase is driven by 2 factors. First, Media carries a proportionately higher D&A base, reflecting its relative maturity and the inclusion of certain payments operation costs. As Melio go,we expect to see leverage benefits. Second, the accounting treatment of executive option and sign-on grant flagged at our fiscal '25 results. Excluding both organic G&A growth was 16%.

Moving to the bottom line. Sustained revenue growth and disciplined capital allocation delivered adjusted EBITDA of $757 million at a 27.5% margin, including Melio. On an organic basis, the growth is very strong at 30%, clearly showing the compound effect of revenue momentum and cost discipline. That discipline translated directly into free cash flow generation of $554 million.

Turning to the balance sheet. Total -- sources at the end of the year was $1.9 billion with a net debt position of just under $400 million following the completion of the Melio acquisition. That is a materially different position from the media announcement when pro forma net debt-to-EBITDA was approximately 2.3x. It sits at 0.5x today, a meaningful deleveraging in a short period of time, reflecting the quality of our free cash flow and the discipline we have applied to the post-acquisition balance sheet.

The strength of this position enables us to proactively manage our capital structure. Today, we are announcing a program to offset up to AUD 550 million of share-based compensation dilution. This will not only offset the upcoming fiscal '27 equity allocations, but also allows us to opportunistically neutralize historical grants at first this year.

This is capital efficient for all shareholders and reflects our confidence in our future cash flow generation. The strength of our balance sheet allows us to offset this dilution, while at the same time, allowing us to invest fully in our future and our ongoing investment priorities. Throughout this program, our balance sheet strength will be maintained.

If it was fully completed today, our net debt to adjusted EBITDA would reach only 1.4x. Let me now explain how this fits within our capital allocation framework. Our framework is disciplined and straightforward. Strong free cash flow generation provides available capital deployed across key clear priorities. First, investment to support Rule of 40 outcomes in line with our fiscal '28 aspirations, product development through our build, partner or buy approach and go-to-market investments. Every dollar is tightly aligned to our strategy and directed towards areas with the clearest path to return on invested capital.

Second, after funding our growth engine, we have capacity to deploy capital for long-term shareholder value. Our balance sheet is strong, and our free cash flow trajectory is only improving. Given the strength of that position, as I mentioned earlier, the Board approved the program to offset share issuance from share-based compensation costs. This framework will evolve as we approach fiscal '28 and the business generates more free cash flow. We will keep you updated as decisions are made as we will review this on an annual basis.

On outlook, I want to start by reiterating our confidence in our fiscal '28 aspirations. We have strong revenue momentum, and as you will see from our fiscal '27 guidance, a clear pathway to more than doubling grief revenue from fiscal '25. Our pro forma Rule of 40 sits at 36%, and we are well on track to be back above the Rule of 40 in fiscal '28. Within that, we continue to expect Melio to reach run rate breakeven on an adjusted EBITDA basis in the second half of fiscal '28.

To help you build a framework through to fiscal '28, let me turn to our fiscal '27 guidance. As we signaled earlier in the year, we are now providing both revenue and adjusted EBITDA guide for fiscal '27. Revenue is guided to be between $3.62 billion and $3.73 billion. This outcome is expected to be supported by a balance between ARPC expansion and customer growth. including some initial monetization of new AI features. While in payments, we will benefit from continued strong revenue growth, which, for context, grew 56% on a pro forma basis in fiscal '26.

On adjusted EBITDA, we expect to deliver between $860 million and $920 million in fiscal '27. There are a couple of drivers within this guidance to note. Firstly, this includes incremental U.S. brand spend of up to AUD 55 million as we commenced a multiyear program to raise brand awareness sustainably in that market.

Secondly, we expect a higher than historical weighting towards H2, reflecting the timing of investment spend across CAP, the phasing of Melio's breakeven trajectory and our normal H2 revenue seasonality.

To close, fiscal '26 confirms 3 things. Our growth is durable and monetization is strengthening and our operating leverage is real. We entered this year with a clear strategy we executed against it, and the results demonstrate that. We are well positioned for fiscal '27 and beyond.

Thank you. I will now hand back to Sukhinder.

Thank you, Claire. I'll now update you on the strategic progress we've made this year as we win the 3 by 3 and drive forward faster into the agentic AI era. As I said, it's been milestone year. We've made significant progress executing our strategy with focus and purpose with a number of key moves highlighted on Slide 24. Beyond Melio acquisition itself, I want to highlight a few other accomplishments.

First, the launch of Xero Bill Pay powered by Melio xero.com in the U.S. this winter, to offer SMBs in the U.S. full management of cash flow in a single place. We're encouraged by the takeoff with thousands of customers already signed up and TPV accelerating month-over-month since that launch.

Secondly, key product launches across the 3x3, which included the Xero analytics platform with AI-powered customizable insights the embedded payroll solution in the U.S. through our partnership with Gusto and the introduction of the Xero simple offering in the U.K. for SMBs and accountants and bookkeepers to support the making tax digital for income tax rollout by the government in the U.K.

Thirdly, from a GTM standpoint, we optimized our sales motions across both direct and partner channels to sell newer offerings like analytics and payments to customers and improve the Xero mobile experience to further uplift direct acquisitions.

Most importantly, we continue to roll out TAI features and new AI innovation throughout the year. From the general release of auto bank reconciliation to financial invites and Jack to the partnerships announced with both OpenAI and Anthropic, to real-time powered AI chat in our support channel, 2026 with the year of high velocity delivery in...

I'm going to speak more about what's next in AI shortly. And lastly, we continue to enable our people to move faster for customers, equipping them with AI education and automation tools and continuing to simplify our operating model across our global operations. Of note, over 83% of Xeros now use AI in their daily work.

Before I talk about AI, there are 2 areas of our business I want to dive a little deeper on the U.S. business and our global payments opportunity. The U.S. is a standout this year. On a Xero organic basis, revenue growth has accelerated from 13% in FY '24 to 25% in FY '25 to 30% in FY '26. This shows we are doing what we said we would do, executing with disciplined investment in our target areas. Combined with Melio on a pro forma basis, FY '26 U.S. revenue reached $530 million in debt up 50% and pro forma gross profit reached $186 million, up 36% year-on-year.

The gross profit dollar trajectory is what matters most. We are investing to build a business of real scale in the world's largest SME market and improving unit economics as we grow. We are on track to achieve the Melio synergies and deliver run rate EBITDA breakeven for the Melio business by the end of the second half of FY '28.

As we look into FY '27, we've now made the decision to step up our U.S. brand strategy in spend on the back of this momentum. This is a deliver sequencing decision. We wanted to get the -- 3 jobs in good shape, including core accounting, payments and embedded payroll before committing to a higher multiyear spend investment. This is a long-term measurable investment to lift the performance of all channels by creating sustained brand awareness uplift, and we're excited to do it.

Global Payments is another important strategic growth factor for Xero. It is our fastest-growing business and has begun to reach meaningful scale across multiple markets. Total payment volume across the group reached $62 billion, $20 billion from Xero invoicing TPV, which is almost double from FY '24 to '26 and $34 billion from Xero Bill Pay TPV powered by Melio.

Total payment and invoicing revenue reached $535 million, up 53% on a pro forma basis year-on-year. Bill pay drone around 40% of the average revenue per customer uplift we saw this year, highlighting the structural advantage of payments. Embedded inside accounting, payments delivers materially higher revenue per customer than a stand-alone offering. This growth is driving significant average revenue per customer expansion for Xero and increasing our stickiness and value to customers meaningfully.

As payment scale, our revenue model is also shifting faster towards a consumption-based model. Pro forma transactional revenue, including both Xero invoicing and Melio Bill Pay has grown from 7% of group revenue in FY '23 to 18% in FY '26. This is a critical shift in the AIH, adding consumption-based revenue to our non-seat-based subscription model and provides more monetization levers to lift gross profit dollars and drive deeper integration into FNB operations.

Pro forma payments revenue has grown at a 70% CAGR over the same period, reaching a $535 million I spoke about. The 2 revenue streams are fixed and consumption-based pricing are complementary and together generate a more durable, deeper, higher-value relationship with our customers. This gives us more ways to grow and let our revenue scale alongside our customers.

All right. It's time to finish on our excitement for the agentic era. We are uniquely positioned to be a winner in an age of unprecedented change in opportunity with mobile strength to harness as we seek to multiply the value we deliver to customers using AI.

While Xero may have begun as a system of record, we began our evolution to a system of decision-making and action years ago with traditional AI and recently investments like Fifth Analytics and Global Payments. But agentic AI has taken the opportunity to drive outcomes for customers to an entirely new level. We see our own AI opportunity at Xero as being powered by accountable intelligence. Our commitment to customers is that our platform, leveraging AI remains transparent, auditable and trusted for every user.

Underpinning our accountable intelligence is our position as the trusted operating system for the agentic era. By this, we need the 4 layers of our offering that customers use. At the foundation, our infrastructure layer connects thousands of bank fees, tax APIs and compliance support across the 3x3 job, including regulated payment rails and the ecosystem, we support thousands of integrations. These are deterministic, complex and interrelated connections that operate seamlessly with each other and with our applications and agents.

On top of that is our data layer, enriched and verified financial data for multiple data sources, both first-party and third-party and then proprietary data models on top from processing 20 years of real-time small business transactions across multiple countries and jurisdictions, along with all the context this decision data generates. And it's important to note that our data layer and our infrastructure layer power not only our own applications, but again, those built by our app and ecosystem partners.

Above that is the Xero applications layer and the agent suite behind JAKs, we are both vertical experts on certain SMB jobs, accounting, payroll and payments, and horizontal and how we unify them into a single financial operating system for small businesses. We are model agnostic and able to take advantage of the latest models from LLM providers to 2 each agent underneath JAKs using our own AI harnesses. That is the data context and model most suited to the specific tasks.

And at the top, the GTM layer was almost 5 million customers and growing, served through a 250,000 strong accounting and bookkeeper channel as well and a multichannel distribution engine to acquire efficiently at scale. Furthermore, that TTM layer is also evolving, and we see AI horizontal players as emerging new distribution channels we can integrate with and already do.

Of note, we already rank very highly globally in AI citations. As you're aware, through our Anthropics partnership, we have now built a connector that allows customers to leverage Xero's financial intelligence directly inside Claude and also track to Xero for our full operating system access.

Overall, our view of Xero's opportunity in the AI era is both powerful and exciting. Our confidence is also underpinned by what we see in our customer adoption of AI. 2.6 million Xero customers use at least 1 AI feature in the last 12 months to March 2026, including traditional AI. 513,000 customers use one of our newer generative AI features, up from 300,000, which is what we told you in February. Our automated bank reconciliation agent has now processed more than 40 million transaction lines, a clear delivery of customer productivity with an accuracy rate of more than 97%. That accuracy is earned and reflects the depth and quality of Xero transaction data in context and the harnesses we've created around generic LLM model capabilities.

Chat messages per customer grew 115% over the course of FY '26. Customers are now using it more conversationally and using it for more complex tasks as they build trustees. We've also launched recent newer features such as AI invoice e-mail generation and new AI-powered -- across web and mobile. The product velocity is accelerating. FY '27 will be a year of deepening the value we create through AI further and beginning to monetize it. You can see on the slide, we have ambitious plans for product delivery. And here is a look at some of our key agents that we can see driving further adoption.

As an example, our data in agent further enhances our ability to get small businesses out of the paper economy and into the cloud by leveraging AI tools and deeper capabilities, we are brought -- types of documents we can process, meaning customers can also get a more complete picture of their business with minimal effort.

Another example of further investment in our bookkeeping or auto reconciliation agent so that we can increase the number and complexity of transactions it can handle as well as more deeply embedded in the workflows of our accounting and bookkeeping partners.

As we've discussed before, our framework to monetize is threefold. First, simplicity, we bundled some AI features into existing plans, so usage grows naturally without friction. This appoints the second principle of adoption. We want to find the balance between bundling and allow specific customers to choose specific AI capabilities a la carte.

Lastly, we are focused on future-proofing. We are building usage linked pricing models for some advanced AI features where consumption is a natural value metric and may also align more closely to higher compute costs. Like many others, we will learn and test and iterate as we go, and you will see us start rolling out monetization in FY '27.

Beyond our core AI road map, we are proactively building the next frontier of AI also. As tech builders ourselves, our goal to experiment with what's possible, try new features and new business models proactively and have vested are not just certain but also speculative within our capital investment in AI. I'm excited to share that first part of our Claude partnership is live today with the MCP integration of Xero in the Claude. If you're an existing customer, you can now connect to in the Claude and get intelligence answered securely about your financial operations via their chat interface.

We are already optimizing for AEO and also new LLM ad platforms. By testing new ways customers want to interact with LLM, it is an exciting new distribution bet for us.

Lastly, I'm also excited to share one other new and early set we are launching today at Xero. Xero Force. What Is Xero Force? It's an easy agent builder that lets customers turn their own customer workflows on Xero into durable agents themselves that can run continuously and leverage Xero as the orchestration hub and core financial OS for their business.

If you are not a full builder who wants to integrate with Xero's API to custom build a full app, Xero Force is a simpler way to innovate and build a custom smart agent on top of the Xero app and third-party apps you may use. This product, for example, is prop led and use natural language. We are very early on building Xero Force, but the agenetic error is all about fast empowerment and iteration which is why we announced the closed alpha today as a sandbox for customers who are eager to learn with us and try innovating themselves on top of zero. AI is not just something we are building for our customers. It is reshaping how Xero operates internally.

Now beyond the headline stats for all Xeros, 97% of engineers are using at least one AI tool also. AI developer tools are saving around 3.5 hours per individual per week and rapidly accelerating time to product launch. For example, we recently redesigned and we built our time sheets experience, completing in 10 weeks what we previously have taken 6 months.

One of the areas we've seen the most uplift is customer service. While Xero has always enjoyed high customer service efficiency, AI is truly transforming customer satisfaction at cost levels that previously wouldn't have been possible.

In the last 30 days, we rolled out real-time AI-driven chat to 100% of our customers around the globe to give them instant support. It is delivering ahead of expectations with 6% of customer queries resolved instantly and over 60% CSAT and this is a brand-new support offering for our millions of customers.

Another area to highlight is direct marketing. Our AI-powered content engine increased output around 80x, scaling from roughly 60 SEO content pieces per quarter to 50 pieces per day and limited U.S. search visibility for minimal exposure to good to great. These are not incremental efficiency gains. These are structural and step change improvements in our marketing capabilities that are fueling our growth.

In summary, FY '26 has been a year of strong growth and strategic execution and sets us up for an exciting FY '27. We are scaling payments globally, accelerating in the U.S. innovating through AI and multiplying productivity for both customers and Xero. Our capital and operational discipline is funding our growth, delivering returns and putting us firmly on the path to becoming a global winner in the small business escape.

Before I conclude, I want to thank our teams around the world for their hard work as we continue to do all we can to support our customers and partners. That concludes our presentation. I'll now pass over to the moderator for your questions. Thank you.

[Operator Instructions]. Your first question comes from Eric Choi with Barrenjoey.

I had 2, if that's all right. One on the numbers and on an AI related question. Just on the numbers, I just wanted to double check what the new guidance means for free cash flow and Rule of 40. And hopefully, you've given us Slide 41. It kind of shows you to 23% revenue growth in '26 and 13% free cash flow margin. So below Rule 40 in FY '26. But your new '27 guidance tells us you do about 25% revenue growth in '27. And I would have thought that free cash flow margin has to improve on '26 given Melio losses on the way to becoming breakeven. So that suggests you should get pretty close to Rule of 40 in FY '27 and then be above it in FY '28. So let's check that first.

Yes. Thank you, Eric. This is Claire. So I think it's thinking about this in the right way. We're really pleased with the execution that we saw in fiscal '26. And to your point, on a pro forma basis Rule of 40 results were at 36%, which was up from fiscal '25 of 32.9%. So great progress in our results in fiscal '26.

As you said, strong guide, so continued improvement as we go into fiscal '27. And you're thinking about it exactly the right way in the sense of we want to remind people that our aspirations were very clear to be more than doubling our growth in fiscal '28 and above the Rule of 40. I also mentioned that in my prepared remarks. So definitely thinking about it the right way, should be above that Rule of 40. And I think the fiscal '27 guidance that we gave you shows that clear path as we are able to execute and deliver that in fiscal '27 and fiscal '28.

So maybe a quick follow-up. That's very helpful, clear. Free cash flow is one thing, but I guess the other investor focus is what free cash flow for EBITDA. Can you just say yes to all of the above. It kind of just an FY '28 revenue number may be around $4.5 billion, just growing the FY '27 guidance in the low 20s.

And to get a Rule of 40 or to get FY '28 above Rule of 40, it suggests a minimum free cash flow number of $800 million in '28, and you did $400 million in '26, so you need $400 million of free cash flow growth. and that has to be driven primarily by EBITDA. So you do simple math, you go EBITDA pro forma $700 million, plus $400 million, it means you need a minimum at $1,100 million of EBITDA in '28, just to get to Rule of 40, but it needs to be more like towards $1,200 million, if you want to clear Rule of 40 more comfortably. Sorry, that broadly correct.

Yes, I'm not going to give the exact numbers in terms of the guidance in fiscal '28. But what I would say is things to think about, we feel really good about the top line growth and the opportunity to drive that more than double our revenue on the top line to your point in terms of free cash flow and what that means for EBITDA.

Remember, we also have committed to Melio breakeven as we exit fiscal '28 as well. So not only do we have the operating leverage coming from Xero, the strong growth on the Xero core. We also have that that's happening from a top line standpoint in Melio and then getting to breakeven as well, which obviously helps us both from an EBITDA standpoint and free cash flow.

Can I do a quick follow-up? Just to second, sorry to start with not -- just on AI, guessing the share price might be reacting negatively to this quarter for small business announcement. So I just wanted to check if that's consistent with the forward integration you announced yesterday. And if that's the case, maybe we can just take a step back and I think clients are trying to weigh up the positives and negatives of you doing an profit partnership. So maybe if you could help us with how you think about how that partnership helps the harms you on both product and on the distribution side, please?

Sure. Well, thanks for the question. So first of all, you're right in assuming that one of the reasons we partnered with Claude is because we see upstream distribution opportunities, and we want to be where our customers want to be. So if our customers want to start an experience on Claude, we want to support that, which is what led to our partnership and then launching today of our MCP connector.

Now the MCP connector is a prerequisite to being able to do deeper integrations. So I would say we're well on our path and we're excited and I think Claude is excited with us. So I think Claude's own announcement today just showcase the opportunity to do deeper and deeper integration into Claude, and we're not only not afraid of that. Obviously, we put ourselves on that path. With our initial Claude deal and having the MCP go live.

So think about the MCP and the connector we've built into Claude as one step and necessary step in the direction towards having users to be able to do even more if they want to, on Claude.

Now I want to juxtapose that to users who want to do workflows on Xero and workflows that go across Xero and third parties. And we also announced today Xero Force, which is if you want to take that journey on Xero, you can also now take it on Xero. And so I think what you should read into all of these announcements is we want to be where customers are. there are advantages to customers who start a workflow and build custom agents on Xero, and that advantage is our proprietary data set, our trusted infrastructure, all the data is there. We have proprietary models that build harnesses on top of generic LLM models, which leads to things like higher accuracy.

However, I cannot decide where all customers want to interact. So my goal is to make sure Xero is everywhere they want to interact. And so think of these 2 things as very complementary. And in both cases, we are positioning not just for today's value, but for tomorrow's value.

Your next question comes from Bob Chen with JPMorgan.

Just a couple of quick questions for me. Just looking at the comments around the FY '27 guidance as well as the comment around AI and the initial monetization of new AI features in FY '27. I mean, can you give us a little bit more color in terms of what we will see on AI monetization feeding into that FY '27 revenue guidance?

Sure. Thanks for the question, Bob. So I think we talked about our monetization principles also in the investor pack. So I won't recap them. But what I will say is, like everyone, our goal is to make sure, first and foremost, we're putting value in the Xero product day-to-day with AI. And often the choice for us will be about whether to bundle or unbundle features that we consider core value, right?

So the first thing you can expect is that we will aggressively think about bundling where we think a majority of users can get value. Now we also have some customers who really want to be able to be a la carte. So as an example, you might have a customer on a lower price point who maybe wants to choose a feature versus, I would say, a bundle of features. So we will sometimes make choices where we allow people to buy a la carte.

And then the third way we think about this, of course, is where do we want to have hybrid bottles where a feature may consume a lot of compute or be a premium value where it's niche, but very high value, in which case, we might want to charge something that's more consumption-based or usage-based. And so I think we're preparing ourselves for all 3. And I think we really see that '27 is a year on the one hand, make sure we continue to deliver core value inside a Xero workflows increasingly leveraging AI.

And you could expect to see a lot of that be a balance between bundling and adoption versus trying to just take price individually for an AI feature. And then we're going to continue to experiment with not only different ways to price but also new offerings like Xero Force, which are more speculative in nature, but we believe can have high promise.

Yes. And I think maybe I'll just add into that specifically to the revenue guide that we've given for fiscal '27. The impact of specific incremental AI monetization is fairly small. So we have a lot of confidence to be able to deliver that revenue growth with all of that what Sukhinder just mentioned, underlying strong momentum as we exit fiscal '26, but the reliance on the incremental AR monetization is on the small side.

Bob, one last thing sorry -- it's Sukhinder, again. One last thing I want to make clear that may or may not be clear to maybe less sophisticated investors in Xero. You'll note that we went from ARPU to RPC in our latest investor path to make clear, we are not a seat-based pricing model. I think this is quite important. So it was subtle shift, but hopefully, our regular investors picked up on it. I mean this is already an average revenue per customer model. It does not rely on seat pricing to deliver our revenue guidance.

Yes. And obviously, that makes a lot of sense with the addition of payments. Maybe just a question on bill pay or payments revenue as a whole. Just looking trying to unpack your U.S. subs numbers as well as payments sort of contribution to the U.S. It does look like the take rate did most of the heavy listing as opposed to direct subscriber growth. Can you sort of just help us unpack how we should be thinking about that payments growth over the next couple of years? Like is it still going to be largely take rate driven? And then also, like it looks like syndication has really sort of tied up into the second half as well. So any comments there as to what drove that strength?

Yes, absolutely. This is Claire again. Yes, really happy with the overall payments growth, plus 58% year-over-year in fiscal '26. I think we're seeing really strong momentum across the board. I think within those numbers, obviously, pleased with the growth performance that we're also seeing with Melio with strong revenue growth in Melio as well. And what we see -- pleased with the take rate assumptions, I think what we see as multiple levers to be able to drive growth across many different areas. And I think now that we've got that consolidated go-to-market team, we're really in a position to continue to optimize further customer acquisition, continue that momentum, to your point on the take rate. So we are exactly where we expected to be with regards to our performance with Media and the border payments business, and we're really excited about the momentum that we've got going into fiscal '27.

Okay. Great. And just on the syndication side, anything to call out that drove that second half?

Yes. Look, I think that Pfizer has its own Investor Day, I think, tomorrow. So for those of you who want to log in, you can always listen to how Fiserv thinks about Melio, I won't comment for them. I do think that -- I think it's public that U.S. Bank went live, which is exciting because that's one of the bigger partners in the Pfizer portfolio. But I would say, relatively speaking, we still have a long opportunity ahead of us in syndication. So we're in the early innings. U.S. Bank was the most notable thing about the second half. where U.S. Bank went live and the Melio is excited about that and so are we.

Your next question comes from Lucy Huang with UBS.

I might start off with the U.S. as well. It looks like in the core accounting business in the U.S. -- is 58,000 subscribers. So just wonder if you can give some color on the profile of these new additions? Are things on coming on to the platform at higher ARPUs, like are they attaching Melio on top? I'm just going to get some color on the additions there.

Sure. Well, first and foremost, I think we're pleased with the increase and improvement in organic performance. And I think it's a testament to, I would say, the core execution of the Xero U.S. team. I mean again, note, this is -- we've roughly dealt organic growth and this is before the decision to obviously step into higher brand spend, which we're making deliberately for '27.

I think the core color in there is just actually solid BE mix, actually. So this is much more a just strong contribution of that core customer profile with better BE mix, which is what the U.S. team specifically are focused on. And as we know, in the U.S., typically, we don't have a tax offering. So when customers do activate, they tend to activate in a better mix.

No. Wonderful. That's great. And then just on Melio as well. It look like fixed cash losses did increase half-on-half. So just wonder if you can give us some, I guess, put the take on the Melio profile on costs coming into '27? And, I guess, confident on that run rate breakeven for FY '28?

Yes, absolutely. I can take that. So Melio performed in line with expectations, and we were pleased with the growth that we saw with regards to gross profit dollars. From an overall expense portfolio in H2 versus H1, we did talk at the half year earnings that we were expecting a step up in cost of second half for Melio related to share-based compensation and the way that we're accounting for that within the P&L in H2. So that was expected and in line with what we were we're seeing as we exit fiscal '26.

As we look at fiscal '27, what I would say is, as you see, we're only strong growth gives us an opportunity for operating leverage gets us really well on track for that breakeven EBITDA target as we exit fiscal '28. So really excited about the opportunity there as the business continues to grow, continue to get more operating leverage as it scales.

The other thing is we do see an opportunity to be able to expand the gross margin over time as we optimize the mix of the business as well. So many things happening across the business in line with what we expected, and we're excited about the journey ahead.

And sorry, just one quick last one on me on the Claude partnership. How are you thinking about the value capture between yourself and over time. I think you mentioned at the distribution partner. So you opportunity moving forward and Claude can bring in new subscribers? Or is there a bit of a trade-off in like functionality that you might be able to monetize in the future that goes to Claude. I'm just trying to keep get a feel for how you think about the value capture between yourselves and the LLM over time?

Well, as you know, all of these models are early. So I think it is -- I would be -- I would say I would be jumping the gun as would everybody right now to tell you what the ultimate models will be. I think the most important thing, honestly, is to be in the game right now and maximize TAM. And by TAM, I mean subscriber access. And so I think it could mean a variety of things. It could mean that you end up having a subset of functionality up on Claude and the full Xero opportunity on xero.com. It could mean we figure out another economic model with Claude and others. I think they themselves have yet to articulate what the models will be. So early, our job right now is to maximize TAM.

Your next question comes from Roger Samuel with Jefferies.

I've got a couple of questions as well. Firstly, just on your international contribution margin because you don't really provide a split by country. So if I look at your international contribution margin, it went from 36% in FY '25 to 40% in FY '26 before Melio, which is great. But given that you are spending $55 million more in the U.S. in FY '27, do you expect that contribution margin to improve also? Or do you think that will moderate in FY '27 because of the investment in marketing?

Yes. I think we've got different impact overall in terms of our international business. Clearly, I think you can see across the international business, not just in the U.S. but also in the U.K., really, really strong growth. So they definitely be able to benefit from operating leverage and scale in that international business.

To your point, we are making an incremental step change investment in U.S. brand, and that is a multiyear sustainable investment, which you don't get the immediate return on investment. So I did mention in my prepared remarks that when you're thinking about metrics like BLTV to cap metric, we were really happy that we saw that improvement to your point. But with that incremental investment that does that will be an additional tax spend that takes that into account. Now we think that's the right return on investment over the longer term, but you do have that kind of short-term headwind as a result of that.

But if you take a step back and look at the overall operating leverage that is also a tailwind for that international business. So there's a couple of different dynamics happening there. We're very much focused on the medium- to longer-term return on investment of those costs and we feel really good about the ultimate return that we expect to see.

I would also say that we feel good about being able to fund that investment out of our increased operating leverage, which I think, again, if you read through the results at the half -- at the first half, we improved our guidance on OpEx. We delivered the lower guidance, and we've also been able, within our guidance now for '27 to absorb that increased step-up in investment. So I think we believe it's the right long-term decision, and we also are happy that we're able to deliver operating leverage in order to fund it.

Got it. Okay. My second question is on Australia definitely, that's been happening in the country. What's been the customer feedback because we've got price increases recently, and then there were some outages a few days ago, which has been resolved. And also, you're talking about the ultra subscription now. So just wondering have you got any feedback from your customers in Australia.

Sure. Well, I think you traversed a lot of ground there, so let me break it apart. First of all, let me start with Ultra. The feedback from customers, we've obviously been -- Ultra will kind of formally as a skew in the near future. But we have been testing the subscription or this tier and the services we intend to provide with customers privately and they are very excited. So I would say we've had very strong feedback about the need and the opportunity for us to have a medium-sized offering and give our customers more of the functionality they want within Xero. So I'd say that has been very positive.

Now overall, on price increases, I would continue to say that our focus is Xero is to make sure that we're continuing to deliver multiple value to our customer over what they pay. And we continue to feel very good about that trade. I think if you think about the investment in sift analytics and Xero analytics being available on the product, I would point to word papers is now available to the Australian customer. And the inclusion of super and being able to have our super capability within the Xero Australian product. And of course, now a whole set of AI features, some of which will be bundled at certain levels. So we continue to always look to price to value, and we feel good about that.

Lastly, let me touch on the outage. It is unfortunate that we had a combination of, I would say, just people understand a few minutes a day, but over several days of intermittent outages. And I think for our customers in Australia specifically that we're doing tax filings with the quite rightly, they were frustrated by that. As a result, we issued both an apology, let them know what we're doing technically, let them know we were working with the ATO. And because of the confluence of these factors, also offered the opportunity to redeem a credit, which some customers are taking us up on.

Of note, our tax filings with the ATO right now are above last year's levels and consistent with those levels. So I think we really want to be responsive to our customers' frustration. I would note that filings are, as I said, above last year's levels. And so we do know from our data that people have been able to submit filings successfully at levels that are above last year's.

Got it. And can I just follow up on Ultra. How much of an increase in the ARPC can we expect from that sort of tier product?

Yes. There is an opportunity to increase ARPC. But as you know and we know it will be about the number of customers who take that up of that product. And again, for us, this is a multiyear game on making sure the right customer has the right skill and that there is an offering at every level for the Australian customer.

Your next question comes from Nick Basile with CLSA.

Just 2 questions. from me. First one on Melio. I think you've obviously called out or shown us very strong pro forma revenue momentum, take rates improving, et cetera, and you've reiterated the revenue and adjusted EBITDA aspirations. But at the same time, I'm just kind of curious to understand if there's anything from a product or execution or go-to-market perspective that you still feel given it's only been a short while since owning the business outright, that you'd sort of like to bid down and improve as we sort of head into '27/And then a second question, just to clear on the tax rate. I just kind of want to better understand the outlook for that given the impact of Melio losses in FY '27 and how that flows -- sorry, in '26 and how that flows into 2017 and beyond?

Sure. So I'll take the first part of the question, of course, and Claire will take the second. You've quite rightly noted that although it seems like we've owned Melio for a while, this acquisition closed I don't know, less than 6 months ago, and we announced the integration of our GTM teams in February, less than 90 days ago.

So I'll tell you what I'm most excited about, but we are early days. That integrated GTM team means, for example, our performance marketing team, which we think of as quite strong is now being able to market, not just Xero's offering, but also melio.com. We think that should be very helpful as we think about melio.com's direct acquisition of its own site, how can we lift that performance. Secondly, the integrated GTM teams are now selling Bill Pay and accounting together to accounts and bookkeepers.

We also think that, that platform sales motion is very early, but showing excitement from accounts and bookkeepers who previously quite frankly, might have rolled out talking to Xero because they were only in the short-term QuickBooks Shop are now opening up conversations with us because we have an additional very competitive offering in build. So I'd say these are the things we want to see come to further fruition because as GTs just combined formally with the org structure in February.

Thanks, Sukhinder. Yes. And just on the effective tax rate, as you mentioned, we saw a much higher level of ETR in fiscal '26 on a headline basis. mainly driven by the Melio losses, and then unfortunately, those losses currently don't generate a positive tax effect, which we did include in our investor presentation that on an adjusted kind of adjusted basis, our tax rate would be closer to like 33% versus the headline number of 51%. I think the way to think about that in terms of fiscal '27 and beyond, obviously, as the business scales, as we look to get towards that breakeven target and guidance in fiscal '28. We would see that improve through the course of fiscal '27 and into fiscal '28. So less of an impact as we look forward. without giving you an exact tax rate, as you can see in some of our disclosures, it is a little bit lumpy, unfortunately, with some of those items.

Your next question comes from Siraj Ahmed with Citi.

I have 3. Maybe Sukhinder just clarifying first thing on Claude for small business. I guess one of the concerns is if you look at the announcement today, it is heavily features QuickBooks, right? But you are one of the connectors that's also live in the ecosystem. Just keen to understand, is this sort of branding excess that QuickBooks has done because you're a partner well? And how do you see this evolving? Because I guess one of the concerns is, like you said, it's a customer acquisition channel, but sort of anthropic decides who and -- right? So can you just address that?

Sure. So first of all, I think we should make clear that anthropic itself has deals with multiple players. And so I am not particularly worried that today's announcement rules out the opportunity for Xero to do deeper integrations with Anthropic. We're happy with our relationship with them. I would say, as I said earlier, getting live with the MCP was the necessary precursor to doing anything deeper. We're well on our way to our own opportunity to integrate with Anthropic, and we expect over time that we will continue to partner with them more and more deeply. So that's my comments on the first issue. And then did you have a second question?

Yes. No, just clarifying on it. So because all the promos, et is saying QuickBooks, you don't think that's an issue because you have an arrangement so that will evolve over time, right?

Yes, yes. If you just look at the course of the past year, let me -- let's go over some of it. We partnered with OpenAI before QuickBooks. Then QuickBooks partnered with OpenAI, then QuickBooks partnered with Claude. Then, we partnered with Claude. So I think we live in a world that is very dynamic, and there are announcements coming all the time. My own job is to make sure that Xero's relationships with OpenAI, Anthropic, Gemini, Microsoft continue to stay open and allow us to take advantage of all their capabilities and then to take advantage of ours. So I think we live in a longer world than a day. And mostly, this is the world we live in now where everybody is continuing to make announcements.

Yes. And I just wanted to highlight. I think Sukhinder mentioned it before, but I just wanted to double down. We see this as kind of a TAM expander and an opportunity for us in the near future and over time as well. And we talked about all of the different ways that we see as an opportunity to monetize AI. Although I said back in our specific guidance, it's a small element of our growth. we see it as a huge opportunity over time in terms of expanding our TAM and also monetizing AI over the medium to longer term. So we're actually excited about what we can do in this area and definitely see as an opportunity for us.

Okay. Got it. Second one, just a numbers question for Claire and then I come back to Sukhinder in the U.S. Just thinking about the revenue guide here, it seems you're already tracking to the top end. So I'm just wondering what I'm missing here. Because if you use your Xero AMRR and you converted by 7% uplift. You're already at [ 3.2 billion ]. And if I just assume that Melio grows at 30%, which seems conservative based on all the comments that you gave today, you're already at the top end, right? Is there something that's offsetting it here, I'm missing?

No, I don't think what we've tried to do is give a range of different outcomes. And so definitely giving you the best view that we have in terms of what the different range of outcomes is, obviously, this is a full year guide. So there's lots of time to happen between now and the end of the year. But we feel really confident we are excited about the level of growth that we're showing within that guide. And I think that is the full range of outcomes that we are expecting.

Okay. Got it. Third one, just in terms of, Sukhinder, in terms of the U.S., right, I mean, a very strong momentum. And I guess increased marketing is a sign of the confidence. Just I guess one of the questions I'm getting from people is just how to think about the returns on the $55 million investment. Like if I use a CAC of $1,000, I think you stack $1,000 per gross add, that should be incremental 50,000 subscribers, right? I know that's pretty crude map. But is that how we should think about it? Or is it a percentage point of revenue that we should think? How should we track your return on this investment?

Progress. Well, first of all, as I think you are aware, the general rule on brand investment is while you want it to be measurable, it's measurable over a multiyear investment with multi-touch attribution, meaning when you do brand spend, typically that attributes across all your channels improved economics on cap over time, right? Witness, when you are sub a certain level of brand awareness like single digits, low double digits, your LTV to CAC will be quite expensive because it's mostly paid. When you have brand awareness historically that in the 30s, 40s, 50s that we enjoy in other markets that has been built over year. You typically are seeing higher organic, you're seeing more efficiency in all your paid channels because people recognize the ad.

So I am very confident that our performance marketing team will measure our spend, and it should yield improved LTV to CAC economics over time. But you do need to spend into it. in order to get sustained brand awareness. So this is why it's very hard to just switch it on and off. Like if you lift and then it falls again, you will not see the improved LTV to CAC economics. So over time, our expectation is it yields better CAC to LTV, but you do have to step into it and have the courage to step into it and make a commitment to multiyear spend.

Yes. And I think what we've been talking about is we've obviously referred to making this investment historically in terms of doing it at the right time. So we clearly feel really positive about our product market fit. We also have the data from the pilots that we've done in terms of U.S. brand spend. And so we feel that we see that return, which is why we're willing to make this commitment. And we're really excited about the fact that we were able to absorb it in our EBITDA guide and still see really strong growth.

Your next question comes from Rohan Sundram with MST.

Most of my questions have been answered. Just one for me. Can you please just talk through the U.K., we saw a strong second half of subs. Appreciate it's early days on the making tax digital side of things. But can you just talk through how you're seeing that opportunity playing out? And how much of a tailwind can it be in future periods versus the underlying improvements you're seeing in the U.K. as well?

Sure. Thank you for the question. As you can probably tell from the numbers, we are pleased with our performance for MTD for income tax. We did see a pickup in the second half of the year as some people went early ahead of that April 1 deadline. But there is a further deadline kind in August. So I don't think we have seen the full benefit of MTD yet.

What we do know from our data, again, we don't share it publicly is that we got a very good share of that incremental MTD demand, and we are pleased with it. Now, of note, as you probably know, it pressed ARPU or RPC -- sorry, our new term ARPC in that those are typically smaller customers who are buying our simple SKU, which is lower price, obviously, with limited functionality than kind of our full kind of BE SKU. But that was the trade we were willing to make. And so we haven't seen the full benefit. We've seen only part of it. We think part of it is still to come. But we are pleased with the amount of share we got of that demand.

And the underlying subs and the underlying market. Are you seeing improvement there? Are you pleased with how that's tracking as well?

I think we're pleased with the steady execution of our U.K. team. We have a very strong team there. over the past several years. Obviously, Kate Hayward has stepped in an internal promotion to run that business. And then we've had a new sales leader and just across the board strong performance. And we, of course, there, which speaks to what I talked about earlier, continue to enjoy stronger and stronger brand awareness, which also supports that kind of growth.

Your next question comes from Paul Mason with E&P.

I was just hoping if you'd go into a bit more detail about the growth initiatives in the U.S. around the marketing standpoint. One of the things on the radar is Xero coaches, which seems like it is like a very different new initiative for the company. But yes, maybe if you could comment on that. And then just maybe a bit about like the venues where the $55 million expected to go, like how much is going to be in online advertising versus like doing things like outdoor advertising on TV campaign as well.

Thanks for the question. So first of all, on Xero coaches, I think there may be a little bit of confusion about what this is. So let me try and clear it up. Xero Coach is a rebrand of our small business onboarding initiatives. So in the U.S. in particular, as you know, you have more subs who come in unattached or businesses who come in direct and self-serve and unattached to bookkeeper.

We also know from our own data that the first 90 days is the best predictor of churn or the best particular of no churn and long retention is getting them set up. And to the extent that, that has friction, we have been testing small business onboarding for the past year in all markets, and we see very strong returns on incremental retention when we help people set up.

Now of course, over time, we hope AI can increasingly help people set up and that's great. But because we have strong enough ROI on this, we really wanted to get available in the U.S. And so in the U.S., we branded it Xero coaches to help you get set up. So that's what Xero coaches is. We're excited about it. And again, with that, more direct customers coming in the U.S. in any other market. important to make sure that we get them activated in the first 90 days and the ROI pencils. So that is question one.

And then question to you on how we're directing the brand spend. I think we told you before that we first activated brand spend in several cities and tested our way into the return. So the first and foremost, what you should think about that is how do we expand our footprint to have enough national coverage to be relevant. And then to your point, in terms of mix, our teams are highly measurable. So I think they will find a balance between, I'd say, outdoor spend and digital spend. We really like digital spend because it has a lot of trackability.

But of course, we are familiar with both types of spends, and I count on our teams to find the right balance.

Your next question then comes from Tom Beadle with Jarden.

Just got a couple. Just the first one, I'd be interested just to understand more about the opportunities around those new products that you've announced today. So just with Ultra, can you talk about the addressable opportunity in Australia? And can you roll this out? Or do you have plans to roll this out in other markets? And on Xero Force, I mean, do you plan to monetize that directly? And if so, how?

Sure. Great questions. So first of all, let me pick up on Ultra. So do we think Ultra has applicability for other markets? Absolutely. Most of the core features within Ultra are core bookkeeping features, which means they're relatively market-agnostic. And so we do see that it has applicability. Of course, we're starting with one of our biggest and most penetrated markets because the opportunity there to expand TAM. It is clearly in the U.S., we still have plenty of TAM in our core segments. And in Australia, we continue to pick up TAM in our core segments, but we feel like the time is right. For us to give customers that have been long asking for more functionality, that opportunity.

So the U.K. would then sort of be another interesting market, given we already had 1 million subs in the U.K. and there's probably already appetite within the base that we have today of customers who fit this profile. So we do see opportunity because it's kind of linked to core bookkeeping, which is itself applicable across many markets. I think that's key.

And then on Xero force, look, I think it is early days on kind of custom agent building. There are multiple ways you could imagine kind of monetizing the opening up of our infrastructure to other people to build. Today, the way we monetize it actually is through our API offering. And there, again, actually, we're seeing a nice increase in demand on people who want to build on top of Xero, but those are people building full apps. So I think we monetize that business now increasingly through API access.

I could imagine some limited version of that, but I think it is honestly too early to speculate. I want to keep going back to kind of what we said in our investor pack. Our job is to sort of have a range of bets from the most certain and I completely see the opportunity to monetize AI within our core SKUs and our core offering. That's very clear. Again, whether it's bundled, unbundled, add-ons, that's like this, like line of sight for us. We're not dependent on it to hit our revenue guidance, but it offers great opportunity.

And then we are -- that are completely speculative. And I freely admit I don't know yet how we're going to charge for Xero Force. I think our first job is to be in the market and experimenting and learning with the most advanced builders who want to build on top of Xero. And that's what we're going to do. And then I think monetization will become more obvious. For us, this is all 10 expansion. And so that's what's most exciting about it.

Okay. Great. That's really helpful and really interesting. And just a second quick question just on headcount. I noticed that -- headcount by about 2% in the second half. So I mean, what was, I guess, the driving as behind that? And just going forward, how should we think about headcount? Are you looking to grow headcount again? Or do you think you're at about the right size now?

Yes. So I think one of the things I talk about a lot is about operating leverage. And Sukhinder in our prepared remarks, talked about the usage of AI. So you can clearly see that coming through. And in terms of our headcount trends and to your point, flat to slightly down as we exit fiscal '26 on an organic basis. I think we are continuing to expect that trend as we move forward in terms of an opportunity to leverage AI to do more with the same number of people that we've got. We've got lots of things as you can hear from a product standpoint, development standpoint, exciting things that we can invest in and continue to develop and as well, I think, huge opportunities from a go-to-market standpoint.

So yes, we're very much kind of looking at how do we use AI to make us more productive to be able to deliver more, and I would say expect a similar trend to what you saw in '26 in terms of the underlying headcount trend.

Your next question comes from Andrew Gillies with Macquarie.

Just a quick one on the U.S. opportunity. There's been a lot of really positive information on this call. It sounds like things are sort of in the right place. probably a bit of a broader question. But what would you say the key growth constraint is in the U.S., not the growth is constrained, but are there any kind of product gaps as the gusto partnership coming along on a deeply embedded basis? Like are there anything you really need to kind of also do that would improve that return you're earning on that brand investment? How should we broadly think about that opportunity in the growth set?

Yes. Believe it or not, I think the biggest opportunity for us in the U.S. is to just deliver on the promise the things that we're already doing. So I think it is squarely within our hands. I think there's -- as we talked about, delivering on the platform out through the combined GTM continuing to not only uplift our own efficiencies in performance marketing, including with brand awareness, but also help Melio uplift. For Melio is continuing to deliver on their syndication pipeline. And for both of us, it's continuing to deepen the offering with accounting, payments and payroll. So how do I feel about all of it? I feel good. And now like our eyes are just focused on execution.

Certainly, that's really clear, and it sounds like it's obviously a compelling opportunity and the business is in a good place. Just a quick follow-up sort of clarification question on Xero Ultra, kind of sounds like, am I misunderstanding that maybe it's a slightly larger customer like slightly more mid-market features. Like how would you differentiate the customer type? Is it still in that core 1 to 20 FTE segment? That would be great.

Yes. No, this is not the core 1 to 20 customer. Think of it as like 20 to 200 employees. Like I think that is the target zone of what we would call a more complex business.

Now historically, we would say 20 to 50 is medium and 50 to 200 is large in the world of small businesses. So but it is clearly north of 20. And I would say, depending on the features we launch, we think there'll be features that are applicable for 20 to 50, which is our pool for 20 to 100 to 20 to 200 but this is the entry -- our entry into that above 20 segment.

Perfect. And then just one quick final one, if I may. Just a clarification. I'm sorry if I missed it, but is Xero Force released this financial year as in FY '27 or this calendar year in terms of the first general release?

Yes. So look, we have not announced a general release date when we announced today is it's an alpha. So what you should mean by that, what you should think about that is that there are already customers in a sandbox banging on a version of Xero Force. And of course, our goal with everything is to get it to general release as soon as we can, but we need -- we always reserve general release timing because it depends on the experience customers having with the product. So announcing an alpha is a good first step, and it signals our intention to just get builders building on top of Xero. And then, of course, we build for the rest of what I call our nonbuilding customers.

That concludes our question-and-answer session. I'll now hand back to Sukhinder for any closing remarks.

Well, once again, thank you all for joining us today. As you can tell, we're pleased with our '26 results. We're excited about '27. And above all, of course, a big thank you to Xero's around the world who honestly keep the customer and our mission front of mind.

Thank you for joining the Xero Limited 2026 Full Year Results Conference Call. If you have any further questions, please contact the Xero Investor Relations team. If you are a media representative, please reach out to Xero's Corporate Communications team.

Hello, everyone, and welcome to our investor briefing. We're really excited to share with you today some more detail on our AI strategy, our payment strategy and really have time to answer more of your questions.

So with that, Claire, Diya, [ Matan ] and several of our product leaders are going to join me today, which I hope will make for a really informative session. So first, I want to start with the fundamentals. Why are we excited? I want to recap that 1 thing we're really proud of at 0 is our continued consistent high-quality growth and profitability and the focus we've had over the last 2 years on balancing that growth in profitability along with subscriber volume and value.

That [ Plaza33 ] focus, we believe, have created a very solid, high-performing growth engine here at 0 that provides the foundation for these new investments. The second and most important thing, of course, is that we believe we have the opportunity to be a net winner in AI. We see ourselves as having many advantages, coupled with, of course, the need to drive strongly in this direction, but together, we believe there's an unprecedented opportunity with this technology to expand TAM and for us to serve customers better.

The third and most important aspect of today's briefing is, of course, Milo. We know many of you want to go deeper on the Melia opportunity. We know you want to see demos. We're really excited along with AI demos to bring you more detail today and really to be able to answer some of your questions in this area. Okay. So what can you expect today? Well, first and foremost, the agenda will cover AI. Then we will go into the [ Melia ] opportunity, and then we will leave plenty of time for Q&A.

All right. So why are we so excited about this AI opportunity? I think what we see is an opportunity for TAM expansion. And of course, this is the case with many disruptive technologies. Gartner forecast that there will be a 4x TAM expansion for SaaS companies. And indeed, my time in the Internet era, I wouldn't is both the rise of the Internet, the rise of mobile, the rise of cloud computing from desktop. And every time we see 1 of these shifts in technology, what happens is the expansion of the pie. Now what does this mean for our customers?

How do we realize that value? Well, what it means is there are 4 key things that our customers are going to look to get done with AI, and we're already seeing this in truth, even in the consumer side of AI. #1, get help. If you look at the explosion of questions getting answered on Chat GPT or on Gemini or in Xero's customer support channels, it's all about getting your questions answered faster. #2, the promise of a genic AI is really getting time back. Having those manual tasks that took you a long time, including in workflows, really get reduced from weeks to hours to minutes or even having them all done for you. And that time saver is essential for small businesses.

The third, of course, is the opportunity to get smarter now. Really, when we think about AI and the promise of advanced intelligence that keeps learning, we need to use that intelligence to really answer questions about your own business, again, thinking in the terms of our customers to get smarter now on their entire business operation. And then lastly, of course, the opportunity for any 1 of our customers is to unlock growth. And they will look to a disruptive technology like AI to help them not just get help, get time back, get smarter, but really get to growth. And that is the ultimate opportunity for any new technology to be able to enable.

Now within this, of course, Xero's critical role to place starts with our positioning as a system of record. We are indeed a system of record for our customers. That means we hold their data. We actually process that data. We have a proprietary data set. But that comes with customer trust, privacy, security, many of the things we promised our customers over the last 20 years. But that positioning allows us to build context smarter and more accurate intelligence in our models, when combined with horizontal technologies and LOMs and of course, take more intelligent action on behalf of our customers.

So we see this as, if you think about it, a triple threat. Really, it is the coming together of system of record evolving to be not just a system of action to give you time back, but a system of decision-making when combined with the intelligence of AI. Lastly, I want to talk about the other advantages that Xero brings to this equation. It's not just our data, first-party, third-party extraction, intelligence, accuracy, these are all things that we will seek to process in our data layer. But remember, we are also a domain-specific software platform and 2 words are key there, domain and platform.

#1, we have been built on deep customer understanding of financial operations for our target segment, which is small businesses. And by the way, we have that domain out in multiple geographies around the world. #2, that domain-specific knowledge goes across multiple jobs within the financial operations stack. So we understand payroll, accounting, payments, bill pay invoicing tax preparation, analytics, expense management. These are all of the sub jobs within the Xero platform while sitting in that deep vertical domain.

The third advantage, of course, is our GTM capabilities. If you think about Xero -- Xero has been built as a multichannel multisegment platform against across numerous domains of acquisition of customers, this includes PLG motion where we acquired directly, an increasing inside sales motion Certainly, we're outbound and we have a channel motion to accounts and bookkeepers. We have, of course, over 250,000 accountants and 4.5 million subscribers we acquire we've acquired over the years.

And if you put that together with new and emerging distribution platforms, of which actually the LLM are 1, we have the ability to keep scaling efficiently our ability to acquire and retain subscribers. And that, in and of itself, is a value-added layer at Xero that helps us keep driving to scale. So now what I want to do is turn you over to Diya, who's going to go through and recap the pillars of our AI vision and how we're bringing them to life by showing you some demos.

Thanks a good. Now in addition to the advantages that Sukhinder talked about, we have a strong, clear and differentiated AI strategy that we know and meets the needs of our customers. And we know this because it is built on decades of experience working with them in the trenches on their accounting payments and payroll challenges.

Our strategy is 4 pillars: First, we're using AI agents to automate actions and workflows across accounting, payments and payroll. So we can help our customers give them time back. For example, think about automating bank reconciliation or automatically closing their books, but that's not all we're doing. While the rest of the accounting industry is focused on building only automation agents, we're also building agents that provide actionable insights.

This helps our customers run their business better. For example, imagine being able to run detailed scenarios for your cash flow and test out different assumptions without ever having to use Excel. How cool is that? Okay. Next, we're reimagining what a SaaS means in the world of AI. Traditional SaaS AP workflows were static and they were unintelligent. They were built to enable users to enter data and complete tasks. However, with agents our customers need an easy way to manage the army of agents at their disposal. They need these agents connected seamlessly to each other.

So the workflows and experiences within SaaS apps have to shift to actually accommodate that. Additionally, SaaS's no longer need to be on intelligent they can intelligently surface to you what you need to pay the most attention to. We have already started down this journey, and you will see Lisa's demo how we are addressing this within our own product.

Finally, finance, accounting and payments are not areas that you can have errors in. People need to be able to trust their financial management system, I'm sure you've heard LLM are notoriously bad at this. Most people think financial management systems is all about raw data and calculations, but that's wrong. It's actually about a series of decisions such as reconciling transactions accurately to close books. Closing books accurately to be able to calculate your tax.

So each of these decisions build on top of 1 another and creates what we call decision data. You need layers of these decision data connected enables agents to understand how the data needs to be used to complete the task that they are trying to automate. This is crucial information, which LLMs do not have, and it gives us a strong advantage.

To bring what I mean to life, let me talk about an example. Let's assume you have your raw transaction data and your bank feeds. You need an AI agent that can actually reconcile the transaction data with the bank feeds. That's called a bank reconciliation agent. You now need a books closing agent. It needs to understand what portion of the bank reconciliation data is required to be able to actually close the books and how to do the automation.

Now when it comes on to taxes, you need to understand how the books are closed, what transactions to pick up to actually be able to do the taxes. So this is what I mean by saying you need lots of decision data at scale and you need context graphs at scale to actually be able to link everything together to help the agents give you consistent auditable and trustworthy answers.

Now 1 of the reasons I'm so confident that we can execute on this strategy is because of the team we have. Xero has an extensive track record for building AI features. And over the last 3 years, we've deepened the AI experience we have by hiring top-tier talent from leading AI companies. Our team of AI and ML scientists have built self-service tools for our entire engineering team that allows them to build an experiment with AI features across our different products.

This has helped us further accelerate our product delivery. Now I can talk about our strategy and team all I want, but we all know the proof is in whether this is actually delivering value to our customers. And I can confirm ours per month by using our automation introductions. Over 97% of help sessions are resolved with Xero Central.

And equally importantly, we are seeing deepening engagement in usage. For example, the number of messages that a user sends to our JAKs chatbot has increased by 61% per user in the last 3 months. And we're seeing 12% of our customers that use Xero analytics use our AI insights features even though it's just recently been launched. Now this feedback we're getting is because of the momentum we have in building out the depth and the breadth of our AI offering.

Through FY '26, AI has become ubiquitous across our platform because of the value it can deliver for our customers. You'll see that we are prioritizing using AI to automate the key jobs to be done that 90% of our users use and that are the most time consuming like automated bank reconciliation, AI invoicing, document ingestion, this means that our AI hits at the heart of our entire customer base and creates maximum value for them.

Now beyond automation agents, we have also launched AI features to help our customers get answers to questions faster and more seamlessly enable smarter business decisions through financial insights and enable business growth opportunities for our AB customers via Jackson Partner Hub.

Okay. Let's now hand it over to Lisa, who will now take you through a series of demos across some of the key AI capabilities we have launched.

Hi, everyone. I'm excited to show you some of the AI experiences our team has built. -- including JAKKS, our financial super agent that orchestrates multiple AI agents behind the to get more done about -- how we're using AI to 1, automate actions and workloads to give time back to our customers; 2, provide actual insights to help them manage their business smarter, and three, reimagine what an AI first SaaS application looks like in a world of agents and chop bots to unlock new business growth.

Let's start with reimagined experiences. We believe the SaaS of the future requires a completely new canvas, 1 designed for AI from the ground up. Last year, we reimagined our entire product with his vision, starting with the home page. We designed for a future where agents complete task end-to-end in the background, and SaaS applications become the space where humans oversee their agents and get the insights that matter.

Previously, this homepage was a to-do list of tasks for humans. Now it's a control room for AI agents and insights, showing users what JAKKS has already done and surfacing dynamic rigids based on what matters most to each business. Here, we have the JAKKS chat interface, often a starting point for users to get help. When we first launched JAKKS last year, we started with an invoice creation agent to help small businesses with 1 of their most important tasks. Since then, we've added more agents into JAKKS, including 1 that answers help questions. and another that researches finance topics on the web through our partnership with OpenAI.

Its control with it shows up here in the upper left. Bank reconciliation is the heart of bookkeeping. Without it, you can't close your books, pay your taxes or build your financial reports. Our bank reconciliation agent transforms us from a manual process into 1, where JAAKs completes the work automatically in the background. To appreciate what this agent does, all first show you a business that hasn't turned it off.

This business has 118 items to reconcile, very typical for busy small businesses. Banker constellation was Xero's original magic. We use machine learning to suggest matches and streamline the process. But now we've reinvented it again for the AI era, and it's 100% agentic. Here is a business with the bank reconciliation agent turned on. You can immediately see that the agent has been working in the background. Only 3 items left to reconcile, not hundreds.

This helps our customers get significant time back. When we reimagine experiences across Xero, we didn't just add an agent. We redesigned the entire workflow to be AI first. Click into the bank reconciliation widget and you get a new agent managed screen -- it's a live log of what the agent had done on your behalf, where you can review, override or change how it behaves over time.

You can see that JAKs has already auto-reconciled 113 line items. And below, you can see details of each of those, including explanations of its reasoning. JAKs automates back reconciliation in 4 sophisticated ways. Following rules the user has sent matching documents in Xero are predicted to arrive based on our algorithms, remembering how the user has reconciled in the past and predicting reconciliation based on 4.5 million other users on our platform.

All of this is possible because of Xero's proprietary data. We have more than a decade of transactions from millions of SMBs globally with nuances by industry, supplier, region and subregion. Plus each business is years of history on our platform. This is hard to replicate and helps our AI reconcile far more accurately than anyone without this data. Our accuracy is over 90-some percent and customers are raving about the quality and time savings.

It's a powder you'll see across today's demos, deep transaction-level data, powering domain-specific models, delivering industry-leading accuracy. Now that Sam's done with his bookkeeping, he turns to reviewing his financials. First, he opens Xero analytics AI insights. Here's the income versus expenses graph. Sam can review this directly but for help understand what it means, he scrolls down to AI insights.

These suggestion chips represent the top questions businesses have. He clicks -- how is my business performing? In seconds, he gets a clear explanation, key trends and a summary of what to pay attention to. We've integrated these AI insights chips throughout Xero with very positive feedback. Small businesses get immediate explanations to manage their business smarter, and accountants tell us these summaries save significant time. They can copy and send directly to their clients. This is a great overview. And San now has follow-up questions. So he opens up a JAKs Financial Insights agent for Interactive help.

It's an AI analyst that helps businesses understand their data and make better decisions. Tim asked, can you give me a quick summary of my revenue for the past year, broken down by service. JAKs looks across Xero data and provides exactly what he needs. He suspects this transportation expenses are getting high and ask how much am I currently spending on transfer services. JAKs looks through the numbers and comes back with the answer, about 1,200 a month substantial.

He's been thinking about buying event for some time. Maybe now is the time to do it. So he asks -- we're looking at a van that costs $20,000 in cash. Can I afford to buy it next month. Here's where JAKs really shines. It analyzes all the business data, looks at historical patterns and projects forward. JAKs flags that Sam's cash position typically drops to 30,000 in February due to annual orders. Spending 20,000 now would create a cash crunch, probably not the best idea.

What about alone instead Sam asked Jacks to run the numbers. I'm considering getting a loan at market rate to finance event. Can I afford it? JAKKS analyzes profitability, liquidity and leverage, looks at current loan rates and calculates monthly payments. It projects that payments would be less than 5% of net profit and the debt-to-equity ratio stays healthy. This could be affordable. Small businesses face questions like these daily. Shy by van, raise prices, switch vendors previously answering them meant manually pulling data and building spreadsheet models.

Now they can just ask Jack to understand the impact on their finances and make better decisions. And accountants can also leverage the JAKs agent to go deeper on analytics, helping them to move up into advisory and unlock new business growth. JAKs Insights agent is truly powerful. We're the first to bring this type of deep analysis agent to finance. The space requires high accuracy and general purpose LLMs struggle with accounting, tax and financial precision. Getting this right requires deep domain expertise and rich customer context.

Financial insights are only valuable, when built on years of transaction-level data. The average Xero business has millions of data points on our platform that we leverage for high-quality experiences. We're seeing over 90% accuracy for the insight agent, a testament to our quality. You see the same pattern here as with automatic bankrupt community. We've reimagined their experience, too.

This is Xero partner hub. Our new product for accountants and bookkeepers. We've consolidated all of our accounting tools into 1 integrated interface, redesigned from the ground up to be AI and insights first and support agentic workflows natively. Accountants serve hundreds or even thousands of clients. So they need features that help them manage across their entire client base. We've built a specialized JAKS agent in Xero partner hub that does exactly this.

Say an accountant notices rising energy prices in the news and wants to check which clients might be impacted. They ask which of my clients had higher expenses this month compared to last month. Instead of digging across tabs and calculating manually, JAKs fetches the numbers and presented automatically. [ Jacoby ] Company has the highest increase of 22%.

The counter wants to reach out to the client but needs to prepare first. They ask shown my most recent notes for [ Jay's ] Capcom. Jack returns that information in moments. Finally, to prepare for the meeting, they need everything in 1 place, generate a client summary for [ Jay's Cockle ] Company for a meeting tomorrow. In seconds, they have a snapshot of financials upcoming jobs and notes, all from a single prompt, say me what could have taken half an hour per client.

We have received strong feedback from accountants that these features help them move into advisory services and build a new line of business. So that's an overview of some of our AI features. I can't show you everything we've launched, but hopefully, this gives you a sense of what we've built and where we're headed. Whether it's automating manual workflows to give time back, surfacing actual insights to help manage smarter or reimagining experiences to help small business -- and account unlock new business. [indiscernible]

Impact of these features is to directly hear from our customers. So what you're going to see on this slide is a small selection of quotes from our customers. For small businesses, the biggest benefit you can often provide them is measured in the hours you can save them. One small business owner using Autobank reconciliation set, it saves about 4 hours per week. I went by last week and came back yesterday and only had a few transactions to reconcile, which was amazing. That's clear tangible evidence of how we help them get time back.

For accountant and bookkeeper partners, the impact is meaningful. 1 AV using Xero AI analytics told us, it's usual things like this that make my job to my clients more of value. This is the impact of automation in our AV jobs. Our tools aren't just saving AV's time. They're actually helping them elevate their role as trusted advisers, allowing them to help their clients manage their business smarter and unlock new business growth opportunities.

[indiscernible] Both our new and existing features like bankrupt suggestions and Hubdoc -- our GI momentum, our FY 2026 launches, including JAKS, auto bank, financial insights. This proven adoption curve gives us high conviction that our newest most advanced features will continue to scale rapidly across our base. A monetization that is simple personal and designed to deliver long-term returns.

First, we know our customers appreciate and need simplicity. And we know that this is key to driving adoption of our AI capabilities. So we will aim to bundle features across plans to meet our customers' expectation without asking friction. Of course, as we bundle these features the value we are adding rises, allowing us to monetize it accordingly. Second, we will also widen access to our customer base across these features by providing add-ons.

What do I mean here? What if they want AI features, but don't want the plan that has those AI features. Well, you can just buy an add-on and get all the bells and whistles of our AI features in that add-on.

Finally, we want to better align our monetization to the value we are delivering. So we will experiment with consumption-based pricing. We've been thinking about this carefully to ensure to get the right balance across these 3 principles for our customers.

This leaves us the flexibility to manage monetization across multiple business models, be it subscription, add-ons, consumption or a hybrid of these, it also allows us to continue to tie our monetization to the actual number of small businesses that we support and the value we provide them versus the traditional seat SaaS-based monetization model, followed by most other SaaS companies.

Now as you can see, we are extremely strongly positioned to capture the additional TAM generated by AI. We have a winning strategy, a world-class team, very strong momentum and positive feedback. But we're not going to stop here. showing that more and more users can utilize our Gen AI features, whether it's automated features like auto bank reconciliation or actionable insight features like financial insights. We are going to we provide with the eye -- we will start by focusing with embedding AI features across our lineup and providing add-ons to widened access, and we will also experiment with usage-based monetization.

Finally, we will broaden and deepen the value we are providing our customers by saving them even more time and helping them manage their business even better. with over a dozen new AI agents launched across accounting, payments and payroll in the coming year. I am very confident that throughout FY '27, you will see us continue to deliver more and more value for our customers. and leverage our advantaged place in the AI ecosystem.

Now I'll pass it back to Sukhinder to take us through the U.S. payments opportunity with Melia & Xero.

Thank you, Diya and Lisa for all that coverage of our AI game plan. All right. Now we're going to turn our attention to the U.S. business opportunity by combining accounting and payments. Now the first and most important thing is our conviction in the strategic rationale behind the Melia acquisition remains as a long as ever.

I want to remind you of the 4 key pillars of this deal for us. First and foremost, accounting plus payments is a critical need for U.S. SMBs. They have told us this in surveys, Noncustomers have told us this in surveys. We see it in customer behavior. We see it in the growth of our own payments opportunity outside the United States. What we really see is accounting bill pay, invoice creation. These are all things that customers expect to see in the same place.

#2, the TIM of U.S. payments specifically is large with macro tailwinds. And what we mean by this, of course, is the digitization of U.S. payments, which is far behind some of the other countries around the globe and present a macro opportunity for SMBs to really digitize that workflow and the payment itself.

The second thing, of course, is this powerful strategic fit. When you can combine payments plus accounting for fulfilling of that 3x3 strategy and better unit economics as we scale. The third and most important part of our decision to acquire Melio was really the team behind Melio and the platform they built is a well-loved platform for SMBs and AVs, it's easy to use. It has many features that are world-class. And of course, it's run by a world-class team of serial entrepreneurs led by Matan, who you're going to hear from today.

And then lastly, I'm going to come back to that we are -- the fact that we are better together. When we think about Melio plus Xero, we see the opportunity to build a business model that is diversified that drives gross margin dollars at scale and in turn LTV, which allows us to keep investing in that U.S. customer. And at the group level, it is enhancing to the group level and really the opportunity to build a long-term customer value proposition that has those 33 jobs within it.

Now I'm going to turn it over to Matan, who's going to take you through the opportunity in more detail.

Thank you, Sukhinder. The U.S. SMB payments market is massive. It represents a $29 billion total addressable market. Within that, accounts payable alone is a $14 billion opportunity today and it's expected to grow to $19 billion by 2030. Today, 90% of U.S. small businesses are still not using software for their accounts payable needs. That leaves a lot of white space still up for grabs.

One of the core reasons this opportunity remains so large is the friction embedded in the U.S. payment system. As you will see shortly, Melio has built the tools to remove that friction, playing a critical role in modernizing and digitizing how payments actually move. This creates a powerful digitization tailwind ahead of us. So now let me show you just how extensive that friction really is because the U.S. payment system is truly unique and complex.

To understand our conviction in the U.S. payments opportunity, we first need to look at the immense friction that exists in the market. Unlike the digital-first environment in ANZ, the U.S. still relies heavily on legacy payment systems. Today, 20% of U.S. accounts payable volume is still processed through paper checks and cash. And when you combine paper checks with standard ACH 72% of the market experiences long settlement times of 2 to 10 business days, but the challenge is in just speed. It's also data legacy methods, especially checks and ACH provide little to no remittance information, forcing SMBs into manual time-consuming reconciliation.

On top of that, payment fragmentation remains a major hurdle, where every business is required to send different types of payments to different vendors based on various preferences. To truly empower SMBs, platforms must support a broad range of payment and acceptance methods. So businesses can pay vendors exactly how they choose domestically and internationally.

Taken together, friction in workflows, fragmented payment options and slow settlement, solving these create a powerful catalyst for digitization and opens up significant new opportunities for monetization. Xero and Melio are extremely well positioned to solve this problem for small businesses Melio provides simple AI-powered bill capture and approval workflows that give business owners control without the manual work or operational complexity.

A key advantage is that many of these workflows are fully self-serve, making it easy for customers to onboard to adopt and scale. Melio is also a category leader in flexibility and choice. [ Part ] pays can each choose their preferred payment method across domestic payments and cross-border payments, helping small businesses better manage cash flow and hers from self-employed -- they now experience to growing and midsized businesses that require multiuser approvals and controls.

Melio also serves the accountant and bouqueper channel, enabling professionals to manage payments across their entire client base, whether they service small or medium-sized clients Melio, enables their CAS practice seamlessly. Melio reaches SMBs in 2 main ways: directly through melio.com, its stand-alone experience and through syndication, Melio's embedded partnerships, expanding the network with more customers, more vendors and more total payment volume.

So in summary, we see a large and highly attractive payments opportunity where Melio has a clear right to win and strong momentum in digitizing how small businesses pay and get paid. Now let me show you exactly how this works through 3 [indiscernible] core experience; second, the significant opportunity created by syndication, driving cost of acquisition efficiency by embedding media into the platforms, where SMBs already operate.

And finally, our focused approach to deep embedding within Xero making Melio a seamlessly integrated offering for 0 small business customers and their advisers. This is the Holy Grail for SMBs. Paying a bill directly from the accounting software, where the bill was first entered, -- no manual data entry, no reconciliation errors and full cash flow flexibility, all from 1 place, all from Xero. And with that, I'll hand it over to Ilan.

Thanks, Matan. Everyone, I'm Ilan, I'm the Co-Founder and CTO of Melio. I lead our product engineering teams. I'm going to walk you through today on a quick demo of our bill pay flow and overall customer experience on melio.com, designed for small and midsized businesses.

Let's start with how easy is to onboard to Melio. I can sign up using my e-mail or connect with Google, Xero or even into it because media is agnostic to accounting software. I sign up with my e-mail and verified. Next, I choose my role. I can join as an accountant or bookkeeper or as a business owner is Melio supports both firms that manage clients and businesses managing their own payments.

I'll add a few details about myself, my business for KYC and KYB purposes I started with the 330 days trial, which let me explore all the media features and capabilities. Once I onboarded, Ilanna pay dashboard. This is where everything comes together. Here, a business can see outstanding bills scheduled payments, their current statuses and deals that have been already been paid.

In the vendor tab, I manage all of the vendors and contractors they pay along with the bills associated with each of them. In the Bill tab, I can see all of my outstanding bills that are ready to be scheduled or paid. And in the payment tab, I can track all outgoing payments and easily see their status from schedule to in progress to complete it.

Most businesses start a payment by first adding a bill. In Melio, there are 5 simple way to do that. And everything is fully self-serve so he can choose what works best for you and to your workflows. First, I can connect Melio my Gmail account. Once it's connected, Melio's AI securely scan for vendors e-mails and deals attachment, pull them in and prepare them as a ready to be paid bills, waiting for me in the right place on the build-out.

Second, if I didn't use Gmail or don't want to grant inbox access, I can use Bill's inbox e-mail address that has been created for me on the onboarding phase and can forward invoices there. or ask my vendors and contractors to send them directly to this address. And then Melio automatically prepares them for a ready-to-be-paid bills.

My third option, I can connect Melio to my accounting system, like Xero 0 any be created there is automatically think into Melia, keeping everything aligned without extra work. My fourth option, if I receive a paper invoice, I can open Mediamobile app take a photo of it and me magically extract the bill details directly from the image.

And finally, I can upload the bills straight for my desktop. Once the upload finish, Melio automatically extract all key information like the vendor name, total amount, due date, remittance details and the line items information. So there is nothing I need to enter manually. Now that all of the invoice data has been extracted, there is another piece of magic powered by Melio's AI.

The invoice and even the individual line items are automatically categorized making reconciliation workflow effortless in accounting system like Xero. That means cleaner books, less manual work and a much smoother hand off to accounting. Let me show you now how easy is to pay this bill. Going back to the Bill's tab, I can see the bill I just added. In the bills table or click pay on the first bill. After clicking pay, I see all the ways I can fund this payment.

I can use my credit card, which let me defer the cash for outflow even beyond the delivery date for a 2.9% fee or I can fund it directly from my bank account. Also, I can use the BNPL option and divide my payment into up to 12 equal installments. This is our choice and flexibility pillar in action. By offering options like credit card funding and BNPL, we empower businesses to optimize cash flow by deferring outflow, while still paying vendor instantly and on time.

I choose to pay this bill using my credit card. Even that my vendor is not accepting cards. Melio led businesses pay using their preferred method of choice regardless of what vendors choose to accept. Next, I decide how my vendor will receive the payment, since this is a domestic vendor, I can send a payment by ACH transfer wire transfer or paper check.

For international vendors, Melio also support international payments. So U.S. businesses can pay vendors in dollars or in their local currency across in more than 80 countries worldwide. This is the first time I'm paying this vendor. -- and the invoice indicates that prefer to get via ACH, so select that.

I'll add a vendor ACH details the bank account number and the routing number and save it. Now I'll choose to deliver its fleet. I can set a standard ACH that takes 2 to 3 business days as same ACH or even an instant payment via real-time payments. I'll choose real-time payments and continue to the confirmation page. I confirm the payment and just like that, the bill is paid -- that entire experience is intentionally simple and streamlined.

And when you are paying an existing vendor, not for the first time, it's even faster as all vendor details are in the system. So as the vendor network grows, it's become even easier. Once the payment is submitted and processed and email notification is automatically sent to the vendor, letting them know the funds are on the way. The e-mail includes the estimated delivery time so the vendor knows exactly when the money will land in their account.

If a vendor wants to get paid sooner, they can join the media vendor network and expedite payment moving from a standard 3 days ACH to getting paid instantly for a fee. The real-time wheel here is vendor can also expedite the payments or change how they wish to get paid without needing to sign up or create an account. Now let me show you how business payments can be managed by an accountant or bookkeeper while final approval can stay with the business owner.

So everyone works together seamlessly. First, let me show you our accountants and bookkeeper manage their business clients in Melio in a very simple way. From the client's dashboard and accountant or bookkeeper can see all of the business clients are managed in 1 place. along with a task that need attention for each client. Now as a bookkeeper, I'll select 1 of my clients with an outstanding bill follow the same quick and simple payment flow I just show you and submit the payments.

Based on the approval rules set by the business owner, these payments are now waiting for an approval by the client. The client business owner received a notification on their mobile device letting them know there are bills that needs approval. Opening the app, they can review the bills and with a simple swipe to approve the payments. And just like that, it's beautifully done and the payments are underway.

The last 1 I'd like to cover today is an important 1 for both businesses and their accountants. 1099 filing, within the pay Dashboard, Melio is a dedicated tax tab where I can manage all of my 1099 in 1 place. I can click into a vendor and mark them as a 1099 vendor. There, I can select multiple vendor and within 1 click send them a request to upload a W9 form. Minerscan those files, validate the information and let me know when everything is accurate and ready.

When tech season arrives, I can connect to Text 1099 and file my 1099s online directly from media. Let's wrap up the core flows I wanted to show you today on melio.com. This gives you a feel familiar experience for small and midsized businesses. simple, flexible workflows, multiple ways to pay and faster reliable payments that keeps businesses real control over their cash flow.

One of Melio's key strengths is that it's built on a true platform. Designed to support thousands of partners. The workflows and differentiated money movement capabilities you've seen today can be embedded, configure and integrated across a wide range of channels. from leading financial institution like U.S. Bank and Capital One to vertical SaaS platforms such as PayPal, Shopify and ADP.

Now I'll hand it over to Eli, who will show you how Media platform powers Z.com users and enable accounts payable for Xero 0 customer across the U.S.

Our U.S. bill pay products, and in particular, our new Milio-embedded BillPay solution. This is a brand-new experience that seamlessly adds bill payment capabilities to the Xero platform and streamlines the entire accounts payable workflow. With bill payments and accounting in 1 platform, small businesses save time, control spending and gain real-time visibility into their cash flow.

So let's jump in. For the purposes of this demo, let's say, I own an agency business called Foxglove Studios, and I want to pay some recent bills. Xero has many ways to help customers easily ingest bills into the system and streamline the accounting and recordkeeping process. You can upload the bill file, take a picture of it or even forward an e-mail to a personalized Xero e-mail address. In each of these cases, our AI will analyze the file and extract the relevant information, saving businesses time on data entry.

Now let's say I just opened my e-mail, and I saw that I have some bills to pay. The easiest thing for me to do is to select my 3 new bills and forward them to Xero's magic e-mail address. So I'll go ahead and do that and Xero is going to take care of the rest. Now that I've sent my bills to Xero, I'll open up my Xero count and get started. This is our new homepage dashboard where I can get a complete 360-degree overview of my business, as you heard about in Lisa's session.

As a business owner, cash flow is always top of mind for me, and I basically live in my cash in, cash out widget. But right now, I've got some bills to pay. So I'm going to use the bills widget to get me to where I need to go real quick. I'll click on view all bills, which takes me over to the Bill's tab. Here, I can see the 3 bills that I just forwarded to zero. The bill's experience is where I can manage all of my company's accounts payables needs.

You can see bills throughout their full life cycle, including drafts, bills waiting for approval or waiting to be paid and of course, those that have already been paid. So I'm going to go over to the awaiting approval tab. And from here, I can see the 3 new bills to pay. Xero's roles and permissions ensure that only authorized users in my account can approve the bills to be paid.

These users could be the business owner, which is me, for this demo, I'm going to move them over to the awaiting payments tab. Now that these bills are ready to pay, I can get started with our embedded bill pay solution. I'll start with the streamlined onboarding flow and click setup online bill payments.

Here, I can read more about our new embedded bill payment solution, all powered by Melio. Okay. Now I'm going to click on setup to bill payments. From here, I can sent to share my data with Melio, so that Melio can process my payments and my data. And because I have some users in my Xero account and helping you with my business, I'm going to assign them permission to make online bill payments as well.

When I feel good about the permissions I've set, I can click confirm and continue. Now I need to add a few details about my business so that Melio can perform a KYB or know your business check. Any information that I've already provided in Xero will be prepopulated here so that I don't need to enter it again. And that really streamlines the onboarding process. When everything looks good, I'll quick continue, and now I'm all set to make online bill payments.

I'll go back to the bills tab now to finish up that payments workflow. So let's select those outstanding goals to pay, and I'll go ahead and click make payment. When I do, I'm prompted to add my bank account because this is the first bill payment that I'm making. I'm going to select my Chase bank account and then I can log in via [ plad ] to connect it.

And while I'm going through and logging in, just as a quick aside, [ Platt ] is our newest bank feeds aggregator partner, and they give us a huge upgrade in feeds, quality and coverage. With [ Plad ], we gain access to over 1,600 new high-quality direct OA feeds and more than 3,100 new aggregator or screen scrape feeds. This triples the number of high-quality direct feeds available to U.S. customers and add thousands of new connections for smaller financial institutions that previously had no feed options in Xero.

Now that I've gone through and linked to my account I can pay those bills. This is the preparation screen, where I can view the bills that I'm going to pay and confirm delivery details around the payments. Again, you can see those 3 bills I need to pay to each of my suppliers. Now if these bills were all going to the same supplier, I could combine them and send them all in 1 payment. But we're sending to separate suppliers, so that option is great out right now.

With Melio, I can select the bank account that I'm going to use to fund this payment. I'll click the payment method drop-down, and you can see the bank account that I just added as well as an option to pay by credit card, which is coming soon. Now I need to choose how my suppliers are going to receive their payments using the delivery method drop-down. So I'll click out of method. And as you heard from an, Melio decouples payers and pays so I can fund this payment in 1 way, for example, bank ACH and my supplier can receive the payment differently, for example, as a virtual card.

I can choose to pay instantly to avoid late fees or schedule payments if I need to smooth out my cash flow this month. I'll choose the ACH option. And from here, I can enter my suppliers bank details. Everything looks good from here. So I will go ahead and click confirm and pay, and that's it. I just pay my bills. This screen is effectively the receipt for my payment that I can come back to at any time. Customers already using Melio for bill payments are saving an average of 5 hours per month on their workflows.

Without Melio embedded bill pay, customers have to pay and record each bill individually. They may have to log into separate supplier portals to pay individual bills and they might even have to physically write and mail out individual paper checks. And finally, I will come on back to the homepage to wrap up our tour of the new Melio embedded bill pay experience. again, as you heard from Elan, Melio is deeply embedded in this core Xero experience, and here is a perfect example of this in action.

Once the payment is made, Autobank rat kicks in, and as you heard from Lisa, JAKs will automatically reconciled the bill to the payment and magically keep your books up to date. That means that key charts like my cash in, cash out widget have the latest data so I can make the best decisions for my business. This is 1 of the clearest examples of why payments and accounting fit so well together.

A small business can now fully manage their cash flow and get a real-time 360-degree view of their business all in 1 place. This is something that a stand-alone payments or stand-alone accounting provider wouldn't be able to do on their own. I don't just take it from me. Our early adopters are loving it as well. One of our small business users literally told us, "I love it, it is easy to use. It is efficient, it is effective and is a great value add to my Xero membership."

Now the Xero and Melio teams joined forces just 2 months ago, and we've already done so much together. In the future, we'll continue to improve the experience and build even more cash flow management capabilities, and we are just getting started. So with that, I'm going to turn things over to Matan.

Thanks, Elan and Eli. From these demos, you can clearly see the strength of the Xero and Melio products in addressing payments friction, helping customers digitize save time and optimize cash flow. When we compare Melio to the alternatives, it uniquely solves both cash flow management and workflow improvements for small businesses. It does this by offering choice and flexibility through simple, self-serve workflows.

Melio also delivers easy onboarding, a superior vendor network and multichannel embeddable offering and a modern scalable technology stack and most importantly, our customers love Melio. Melio's strong NPS scores and proven growth track records are clear evidence of that.

Ever. So very real pain points for small businesses in the intoeconomics, how this opportunity shows up in our P&L, how we're going to measure progress and why we're confident in the value creation path. I'll start with the unit economics of a Xero a media customer in the U.S. then step through the new disclosures we're introducing and finally show how we think about the key growth levers, TPV and take rate. and the path this gives us to our fiscal '28 aspirations.

Let me start with unit economics. On the left-hand side of this slide, we show an illustrative view of average gross profit dollars per user in the U.S. Accounting provides steady gross profit dollar growth and drives engagement, while payments scales materially as accounts payable volume is digitized and vanitized. Together, accounting and payments deliver a significantly large gross profit dollar expansion opportunity than accounting alone, underpinning long-term value creation.

That differential is what really matters for the business. It gives us a powerful flywheel, higher ARPU and gross profit dollar per customer increased lifetime value, higher LTV in turn, gives us more room to invest in customer acquisition and scale. As the syndication network grows, we can bring in additional users at lower acquisition cost further reinforcing that flywheel. So when we talk about Melio changing our U.S. economics, this is what we mean. We're not just adding revenue, we're actually improving the gross profit dollar we earn per customer.

Turning to the U.S. P&L. This table shows our pro forma U.S. revenue composition and profitability -- and within that, syndication versus Xero direct payments. A few points to call out. First, payments are a material part of the U.S. business. On a pro forma basis, total U.S. revenue is growing strongly, with the payments being the largest and fastest-growing component.

Second, we're introducing new disclosures. So you can track this opportunity over time. We will provide bill payment revenue within our U.S. business, split between syndication and direct customer revenue. Will also disclose total TPV and gross TPV take rate for our direct customers. These are the key inputs for our direct revenue opportunity, which is the biggest part of the U.S. business.

And because we think about the business as a combined payments and subscription engine, we will give you U.S. gross margin and U.S. gross profit. So you can see both the scale and the profitability of the combined U.S. business. Current gross profit reflects existing payments mix, the current scale of the business and the early stage of syndication.

Over time, as we improve mix and optimize take rate, scale TPV and expand syndication, we expect this to translate into stronger gross profit dollars, which ultimately funds further U.S. growth. If you look at the payments business in the U.S., there are 2 primary economic drivers we focus on. Total payment volume, or TPV, which is how many dollars are flowing across our network and growth take rate, which is the average economics we earn on that volume.

To grow TPV, we need more customers putting more of their spend through our rails. To improve take rate, we need to influence the mix of payment methods towards higher value options. A key point here is that neither of these is a passive outcome. Melio already has a strong track record of influencing both TPV and take rate through product design, workflow, pricing and education. We're bringing that capability into Xero's U.S. base.

Let me unpack TPB first. This chart shows an illustrative cohort of Melia customers over time. What you see is that once a small business starts using Medio, TPV doesn't stay flat, it ramps. On average, TPV increases around 75% in the first 12 months as customers gain confidence and migrate more of their bills and cash flow management onto the platform.

Beyond year 1, TPV continues to grow at double-digit rates as Melio drives deeper penetration and adoption of more bills in that platform. There are multiple ways to unlock that. adding more payment workflows and use cases, improving existing tools, so it's easier and more intuitive for customers to move more spend onto the platform. We then see the benefit of consolidating more of their payments with us. So the opportunity is not just to win a customer wants. But to go create value of that customer over time as we digitize more of their payments. As this scale expands payments adoption becomes a more powerful driver of long-term growth than just subscription growth alone. On the other side of the equation is take rate. As TPV per customer grows, Melio has multiple monetization paths on each transaction. depending on what the customer needs engagement, cards liver, large transaction volume but a lower reported margin due to the accounting treatment.

In contrast, are the premium methods such as instant or FX payments, generate higher-margin revenue that further scales gross profit. Each method [indiscernible] the option to expedite payments for a fee. The takeaway is that take rate is controllable through design, data and experience. We can guide both payers and payees towards higher-value methods that work for them and for us.

When you bring TPV and -- take rate together, you can see why we have strong conviction in the financial opportunity. When we announced the Melio acquisition in June of 2025, we set out clear aspirations for the combined business. All of the dynamics we've just walked through. richer unit economics, TPV expansion and an actively managed take rate underpin those aspirations. As a reminder, we said we see an opportunity for the combined business to more than double Xero's fiscal '25 group revenue by fiscal '28.

That supports our goal of delivering greater than the role 40 outcome for the group in fiscal '28. And for MELIO specifically, this pathway, scaling TPV, improving mix and expanding margin provides a clear line of sight to EBITDA breakeven, which we expect to occur on a run rate basis, continue to manage this with disciplined execution across the group, focusing on revenue scale and incremental margin expansion, underpinned by ongoing efficiency improvements strong cost control and disciplined capital allocation, including targeted investments in AI to drive both productivity and long-term growth.

So to summarize. the key takeaways. Melio is a powerful strategic fit for Zero. It solves a critical customer need in U.S. accounts payable. It brings a world-class team and modern platform with deep capability in B2B payments, and it creates material value for Zero through improved U.S. unit economics. That value is delivered by improving the 2 key revenue drivers we've discussed, TPV and take rates, which together provide a clear path to Milo and to the fiscal '28 aspirations we've outlined for the whole group.

Importantly, we already see strong momentum in the combined business. in both the financials and the operating metrics, which is why we are confident that the growth and monetization pathway is not just theoretical, it's underway. Before I hand back, I want to briefly touch on integration. Integration is progressing at pace and we are really pleased with where we are. We have seen great progress, as you've seen with regard to the product and the product embed and the availability of all of the functionality of Melio in Xero, as we look at our go-to-market, those teams are coming together and working together to really drive the best outcome for our customers.

So as far as integration goes, as you can see on this slide, some really great progress across products, across go-to-market, but also areas like customer experience has been progressing as well as some of our systems and processes. So as a reminder, we see great value creation opportunities as we bring Zero and Melimo together. It will accelerate our growth. It's going to really improve our U.S. economics. -- it's offering a diversified portfolio for our U.S. business, like we have globally in our other regions. And this is the value of Xero and Melio together. We can accelerate our growth, we can drive profit.

On both the stand-alone and embedded product and then, of course, some of the new disclosures we're providing around this business to help you understand it better. And now, of course, we'll head right into Q&A.

[Operator Instructions] investor education.

You've given us lots of information on strengths and advantages. So I just had a couple of follow-ups. I was just wondering how to plan to protect its data in an AI world, and -- and I wondered if you could comment on media-specific moats against AI disruption as well. So on Slide 8, you said you're going to do distribution partnerships with LOM. So I was just wondering, does that look something like what ensued an open AI or do we -- and if so, how does Xero protect its data in such a scenario?

And then on Slide 19, suggests B2B payments is quite underpenetrated more so than B2C. Just thinking for Melio, are there quite a few things that have made it hard for competitors that will earn I think that things like regulatory licenses, KYC, physical check infrastructure, and those sorts of things.

If you could talk through that, that would be helpful. .

Thanks, Eric, for the question. So why don't I start on the first question? And I think Diya and Matan, I'm sure we'll both comment on the second question. Do may comment on the first as well.

So -- it's important to remember, obviously, that our customers' data is protected by our commitments to them. This is why we have a responsible AI framework that commits to them, how we will protect their data because it's 1 of the things they look to us for. Now when you think about our relationships with any new potential distribution channels, they can range from a deep integration with a biz dev deal, they can look like ads. We know that OpenAI is already talked also about its own desire to have ads or can look like a self-serve integration.

Many of these channels will open up what's called an MCP server, where we could go agent to agent and allow certain outputs from Xero to be published into that framework. But again, the most important thing is regardless of how we think about the upstream distribution opportunities with the bigger, I'd say, consumer like chatbots -- the most important thing for us is that we take a responsible AI framework, and we embed that framework in any way that we integrate any customer data into any third party.

And we do look to that. So that will constrain we might do a self-service integration, for example, because we have a responsibility to protect. And I think that if we do a deeper deal, we may see custom terms in order to protect our customers' data. It is important to note that many of the terms of service of some of these LMs themselves protect customer data, but I think our customers expect us to go above and beyond and ensure that's the case in any way we seek to take advantage of those new distribution channels.

Diya anything to add before we talk about?

Yes. What I'll add there Sukhinder's absolutely right, Eric. What -- the thing to think about here is it's not the output that is important. As we talked about -- when we talked about what makes our data unique, it's the layers of decision data. None of that data will ever leave our system. So it's not like you can actually reproduce the output in any way. So that's 1 thing.

The second thing is Today, most of these LLM actually do say if you connect to them through their developer APIs, they do not use your data for training, and that is well known and well understood. And then what I'd add on top there is -- they will work with us through our MCP servers, which then limits the type of data they can get from us. They can get direct output from us. They cannot get anything deeper than that.

And do you want to pick up on the second question? I think Eric was also asking about payments, payments AI, payment moats in the world of AI, do you want to start and then over to Matan. So payments in the world of payments, I think when you think about payments, what's really important is for us to be able to enable our customers to speed up their cash, right? The cash they get in their pocket and be able to manage their cash flow. If you think about AI agents, it is -- they will absolutely play a critical role here. think about being able to chase your customers to pay you, right? That today is done manually.

at an agent and will be done with an automatic agent. Think about making that AI agent intelligent in terms of what kind of late fee to apply based on your customers' lifetime value and relationship with you. On the other side, think about an AI enterprises have this where you have tons of people figuring out when you should pay your accounts payable, right? You do deep analysis on terms, conditions, what will maximize our cash flow. Again, applying AI agents to these, you can do that. So you can manage both sides of the equation, including workflows like approvals, et cetera. So we believe Matan strongly believe and I'll let him speak here. But -- we strongly believe AI does have a strong value to play in payments as well as long as you ensure that before any money moves out of a bank account, you get final approval from the user.

I agree with everything Di mentioned, and I'll just add on both the user experience and the infrastructure that we've built AI used across the user journey from saving time on data in workflows like taking a photo of a bill and automatically capturing the details of this bill to automating the risk and compliance engine that powers all the money movement that we enable small businesses across our different partners and with our stand-alone experience.

AI serves a critical role in making sure that we keep the money movement fast as Di mentioned, secured and protect from risk and comply with the different regulations. So across the user journey, from the infrastructure to the user experience, we embed AI to make sure that our user experience is competitive and answers our customers' needs.

I'll have 1 last point that is very obvious in payments, but I'm going to make it anyway. Payments is a consumption business model. So as the world thinks about business models that are both fixed and variable, payments is not only something that I think users want a lot of oversight of regardless of how we use AI functionality. It is already a consumption-oriented business model.

Excellent. Can I just do 1 quick follow-up with Clear. Very hopeful that you've given us that Melio breakeven on a run rate basis by second half FY '28 guess the natural question from investors and sell side will be -- not the target, how do you mechanically get there. And I was just wondering if you could just entertain my logic because it seems fairly easy to build a bridge to get there.

So -- if we look at Melio OpEx, it was $175 million in FY '25, that probably grows. So let's say, mill OpEx could be circa $200 million by FY '20. So obviously, familiar to be breakeven, you need gross margin dollars to be close to 200 by FY '28.

So let's say, you guys are forecasting gross margin dollars to get to $150 million to $200 million by FY '20. And then we also know the gross margin percentage is 20% to 25%. So if you gross that 150 to 200 up, you're basically implying in FY '28 revenue familiar of 700 plus call it, $700 to $750. -- maybe be better if you do better. But what does that all mean? Like if you look at first half 2016, you did $75 million of mill revenue.

So you're annualizing $150 million and you're going to wind up at, call it, circa 400 or 40 plus in FY '26. So to get from $400 million to $700 million plus in FY '28, you're basically saying you need to deliver the same nominal amount of revenue growth in 27 and 28. -- that you did in FY '26. And arguably, there might be more positive revenue drivers in '27 and '28 that you've seen in 2016. So that was very long-winded. I'm just trying to make a point that you can kind of get that extrapolating current Melio revenue trends.

I think thanks, Eric. And I like the way that you're thinking about it. I think the fact that you've zoned in on gross profit dollars, for example, and the strength that we have from that revenue scale as Milo continues to grow, -- we've seen really strong growth historically as we've already disclosed. And then as we talked about in the prepared remarks, the value of those customers does build over time. So that's obviously a growth opportunity. In addition, the growth that we foresee to get from syndication over time as well. So as you said, a lot of opportunity coming from that revenue growth and revenue scale, which that then does drop through to gross profit dollars, and to your point, from an OpEx standpoint, I think we've said from day 1, the announcement of this great acquisition that we do see operating leverage. So a lot of the investments from an OpEx standpoint have been made upfront.

So we don't anticipate OpEx to grow at the same pace as revenue, giving -- definitely giving us an operating leverage. So as you say, if you look at that revenue growth, if you consider the profit -- gross profit dollars that, that contributes and the operating leverage that we get from OpEx -- that's how we get to our fiscal '28 run rate of EBITDA breakeven from.

Awesome. Thanks for the answer on the update today. .

Thank you. SP-13 Your next question comes from Lucy Huang from UBS. SP407107096 I've got a couple of questions. So firstly, I think, Clay, you mentioned you think the take rates are quite controllable. -- moving forward in terms of the ability to kind of grow and direct customers to a higher payment type. Just trying to think through kind of, let's say, FY '28, what do you think is the optimal mix is, say, the premium payment types relative to kind of pad versus ACH. I think you've got -- given us a pretty interesting graph there. Like where do you think premium payment type could become in terms of the proportion of the base there?

Yes. So thank you, Lucy. So what I would say is, I think it's about the combination of everything. So it's a combination of that mix of the more premium high-margin products, but also the scale and the volume we get from of the other transactions as well. So we are looking at a combination and a solid mix to be able to drive those gross profit dollars.

And as we talked about -- we do think that there is an opportunity to influence the margin and the product mix over time. but we are not just reliant on gross margin expansion from a gross margin rate standpoint. We're definitely finding that right balance between volume, scale high transactions, high volume as well as margin expansion through scale, through syndication and through product mix. So I don't know, Matan, if you want to add anything about our ability to influence. But SP-14 As to you? .

Yes. And obviously, I agree with what Claire mentioned, I will just say sometimes it's true for the payments ecosystem in general with scale, there are opportunities to improve margin. And in addition, Melio's business is diverse. We have our stand-alone experience, and we have our syndication partnerships that will also help us improve the margin.

As a business, the payments business, we care about serving our customers, increasing our revenue, increasing our gross profit dollars. And we will continue to enable, as you've seen in the deck, many types of payments because that's what our customers require when they pay their vendors, they send virtual cards, they do international payments. They pay by car, they do ACH, they do instant payments and -- the portfolio of payment methods is 1 that we're going to enable, continue to optimize.

And due to all the friction that we've talked about in the presentation, -- these create many monetization opportunities that we're capitalizing on, have been capitalizing on in the past, and we'll continue to capitalize on in the future.

One last thing, Lucy, just to point out, which is probably obvious, but I'm going to say it anyway. -- we are very focused on gross profit dollars. I think this is very critical. Like you can focus only on margin percentage and miss the dollar opportunity. For example, let's say you drop lower-margin payment types. -- and thus, you don't get the TPV per user. That would be a miss, right?

So Matane's point on coverage, on payment coverage is as important as the individual mix and having higher margin products in the mix. You want to capture the full wallet. And as Clare showed you, per active user is a key metric for a payments business. And for us, it's about the gross profit dollar accretiveness of this business to our core business.

Any color on what proportion of Sara customers in the U.S. that are now switching on Melio within the software and processing payments now just so we can get a gauge of what the ramp-up would look like.

In the agent? Yes, I think it's very early. I mean I think that to give you a sense, I think we launched the experience in December Jan, it went even we went GA and Jan. So we've had 30 days of data. What I will say is the data is very encouraging. I think we're really excited to see what users are taking advantage of -- and obviously, Matan has points of comparison not to be shared on this call, but points of comparison with other partners, so he can compare how Zero is doing relative to other partners. And I think we're encouraged by the features we've been able to turn on fast that are very useful and beyond what we had in our bill functionality. And our qualitative feedback also is extremely strong from our customers.

Yes. And sorry to a 1 from me. Just the 2 million cells you think JAKs on AI within her now? Like are you able to give us some qualitative feedback on how extensively they're using it and also just in terms of kind of the monetization strategy. You talked about kind of the 3 options that do you think overall this will drive a step change in ARPU growth for the business longer term?

I can take that is going to take it -- so for the first question, Jackson AI, yes. So when we think about JAKs, JAKKS is our super agent. So when you think about our product service area, there are multiple agents. There's a bank reconciliation agent there's a financial incitation that you saw there is an invoice agent, et cetera.

The way we use JAK is JAKKS is our super agent that orchestrates all these agents. Yes, it has a chatbot interface, but it also works in the back across the UI to ensure all these agents work seamlessly together and connect to the UI in an intelligent way. And the real reason behind this is that we believe that SaaS apps will transform over time, right? You will move from having UIs where users input information to having users manage agents. And instead of having to manage multiple agents, you can imagine if you buy different pieces of software or if you try to build your own agents, we want make it easy and convenient for users to be able to have the ability to talk to 1 agent think of it as a manager of agents, right, that you can talk to, to be able to get all your work done across your financial platform.

So that's why we use JAKs and AI interchangeably. Now your second question was on monetization. So the way we think about monetization is threefold. 1 is we know we have to keep things simple. Because if you start throwing different agents, different ways of monetizing, et cetera, at customers, they're going to get confused. The second principle for our monetization is driving adoption. -- which is -- 1 of it is obviously making things simple, but the other is also increasing access.

So where are certain features available if they are available in certain plans, but not in other plans, but people want to use it, can we provide some kind of add-ons and then the third thing is actually future-proofing it with different business models. We all know SaaS business models are going to change in the era of AI and they're going to move more towards usage-based consumption based, et cetera. And so how do we future-proof this?

So what we do with our monetization efforts is try to balance these keeping it simple, driving adoption at the same time being able to future proof it so that as people use more and more and as more and more values delivered, we have the right models in place to be able to business models in place to be able to capture that value.

I think, Lucy, I want to pick up on 1 thing we're going with you said and answer 1 more question that you asked. So first of all, when you ask is there a step function change in ARPU, look, we hope to grow ARPU over time. We talked about that 4x expander of TAM that Gartner talks about when they talk about the opportunity for SaaS companies and particularly companies, in our case, that are vertical domain experts and systems of record. I want to come back to that core principle.

That's what gives us the right to play to be a system of decision and a system of action and an orchestrator of multiple agents across multiple jobs to be done. So that's important. But our goal is to make sure our customers get value. So we are playing the short, medium and long-term game here. If we're going to drive adoption, you're not going to try and just capture all the ARPU games upfront because what you really want customers getting utility from the product. You also want to, as Desai, look to some of those principles. So we don't need JAKs. We don't need JAKs to get a onetime step change in ARPU. What we need to do is keep delivering value and keep orchestrating multiple agents -- and really, I'd say, future proof our own ARPU growth by making sure we're not trying to take it all in 1 lump sum. So you can see we've already been pretty measured relative to our competition and being thoughtful about how we monetize and when we monetize -- this year, we went all through the year with effectively in beta. And I said to the market and said to all of you, we're going to look to monetize in 27, but we're not going to try and take it all now before our customers see the value or we can show them the value. I think it's important. Last point, I want to come back to the $2 million you asked about. So remember, what we gave you is $2 million is the number using traditional AI -- and I think this is very important because we have long had AI in our product. We have it in data ingestion. We have an OCR. By the way, we have it in auto bank reconciliation suggestions. Many of our competitors count things like suggestions in their overall AI number. We've chosen to disclose our traditional AI and then our newer features. So we're proud of the $2 million, and we're really proud of the 300,000 because that 300,000 is excluding customer service, on the features launched in 26 under JAKs in that new AI Genii banner. So we're trying to give you a view for our traditional AI strength. -- including things that others may count as AI that we count as historic AI plus our newer Gen AI adoption. So hopefully, that becomes clear now in the disclosures. SP407107096 Your next question comes from Bob Chen from JPMorgan.

Just 2 questions for me. Maybe first 1 on AI and the ask. I understand could see some lift in overall ARPU. How does the input cost of tokens and staff come into play? Like how should we be thinking about the gross margin of the software business? I mean, historically, it's been in the high 80s. -- does the AI monetization pathway pain, how we should be thinking about the gross margin of your business? .

Do you want to take this, Clear? Yes, sure, absolutely. So I think what we're looking at -- and the whole industry is looking at is how does this evolve over time? And I think we're not anticipating significant changes in the gross margin profile of our 0 core subscription business. We obviously will be monitoring the impact of additional costs that gets factored into the way that we do pricing, the way that we do the monetization and how that scales. And I think as Di said, very much focused on adoption first to make sure that we're bringing that value to customers. But from a cost standpoint, that is all managed in that kind of value proposition. So not expecting material changes over the medium term to our subscription gross margin. numbers. It's also on the reasons that we do want to make sure that the model is at least future-proofed in so much as consumption will affect costs cost of tokens coming down rapidly, but then different features have different compute. And so it's 1 of the reasons you want to be able to have at least the readiness for consumption. -- and starting to message that, that's something we want to weave into our business model.

Okay. Great. And then maybe a question on Melia. I think there's a couple of mentions around syndication sort of ramping up and becoming more important. We did see Capital One make an acquisition recently of Brex. I'm interested to understand, does that impact sort of any relationships there -- and then also sort of long term, like how important is syndication for you to get to your 28 sort of implied numbers? .

Yes. Yes, maybe I'll just do a kind of a high-level view in terms of assumptions of syndication, then I'll pass to you, Matan. To follow up. So I think the way to think about syndication and increase over time. But as you've seen, our direct business also is growing at a rapid pace. So I would say the proportion of the syndication as a percentage of the overall business isn't expected to materially change over time. But on both melio.com and the syndication business, we obviously anticipate really strong growth and future opportunity ahead. specifically on Capital One. And Bret, do you want to make a high-level comment on that?

Yes, sure. So Capital One and 0 now have a very strong partnership the Brex acquisition was in order for Capital One to have capabilities to target corporate clients with corporate card spend control solutions. The media partnership is targeting a completely different segment with a completely different product. We're targeting small businesses with cash flow needs across the Spark Capital One card business unit and the Capital One Bank unit.

And so Capital One have reassured us again and again that our partnership has been very successful and in more resources to make it even more successful in the future. we see no risk due to the Brexit acquisition, and we're happy for Capital One for doing this great acquisition to target yet another segment that they were less active.

Your next question comes from Nick Basile from CLSA.

Kind and Tim. Just 2 questions from me. The first one, I guess, just tries to strike at, I think, at the heart of what you're presenting in terms of when you're showing us the time saving and potential automation benefits of for customers of as AI assistant for bank reconciliation and then the link at the end to MELIO's-embedded BillPay product. What sort of percentage of new users do you think will look to combine your bill pay and accounting suite within the Xero ecosystem. And can you give us a bit more of a guide on, I guess, current attach rates or any sort of targets you may have as part of your go-to-market in the future.

And I'll ask the second 1 as well to give you some time to sort of think about the answer, but it sort of goes to Slide 39. There's a few moving parts in the business, of course. But -- on the 1 hand, we see TPV volume for bill pay slow a little bit sequentially, but at the same time, you've seen your gross GPV take rate improved. So that kind of speaks to the controllability aspect. And of course, then your revenue is also sequentially sort of 1 of the best periods. So -- with that said, I'm just trying to get a better sense of what kind of drivers we think are going to be the biggest part of the story to hit your 28 aspirations from a revenue and, of course, the EBITDA run rate perspective, like how much should we be focusing on improving take rates versus maybe the bill pay volume TPV also expanding and just the balance?

Sure. Why don't I take the attached question and then Claire and Matan may take the second question. So if you think about the attach rate -- first of all, you have the attach rate of AI, I think you asked about the attach rate of MELI and then the attach rate of products like Sift I think it's important to realize that when we did the business case for Melio is a customer base. I think at the business case time it was around 80,000. We had about 408,000 subscribers. But relatively speaking, we were very clear that the synergies from this deal actually come less.

We do have cross-sell synergies, but they can far more from like winning the white space customer, so while we do intend deeply to drive attached, that's why we embedded Melio on Xero, and we, I think, are on a goal to increase utilization across all these products, including AI. I think it's important to just remember that the catch rates on Milo specifically to the U.S. business is only a just winning the marginal new customer faster than Xero alone could.

That is the vast majority of the synergies, now over time, of course, the number -- the sheer number of customers, who attach, we hope, increases well beyond the aspiration period, but within the aspiration period specifically, more synergies are actually driven by winning net new customers, even though we will continue to drive attach on Xero.

Sure. And I'll take the second part of your question. So with regards to how to think about what -- how to see the mix between TPV take rate, et cetera, when it comes to our fiscal '28 aspirations and media breakeven goal and the run rate as we exit fiscal '20 -- we talked about scale, and I think it is important to remember that. We can see the really strong growth, and therefore, the growth in TPV that we expect over time.

Existing customers as we expect them to grow over time, but also new customers that are coming on board. And then I think with the leverage of the go-to-market support from Xero as well, there's lots of opportunities, as we've talked about in terms of synergies over time. So I think definitely think about scale, think about that kind of TPV value and how we can get value from customers as well as new customers coming on board.

We do anticipate improvements in overall take rate. We do anticipate improvement in margin rate expansion, as we've talked about, coming from scale but also from improved product mix and as Matan and I both mentioned earlier, from syndication as well, which will help from a margin expansion standpoint. So I think focus on the scale element of that and then the contribution of gross profit dollars, as kind mentioned earlier, in terms of how that helps us drive the EBITDA as well as the operating leverage that we talked about from an EBITDA standpoint.

Yes. And if I can add from a customer perspective and as to Kinder always say, customers expect Xero to shift from being a system of record to be in a system of record and a system of action. And that means embedding more capabilities into the Xero product, bill pay, obviously, 1 invoicing, gastro partnership payroll. All these products have different margin profiles, margin percentages. But at the end of the day, -- this is what customers expect from us to do. And at the end, we're going to provide more value, and we're going to capture and capitalize and monetize this value, increasing revenue, increasing gross profit dollars, but each of these capabilities have a different profile. But that's what customers want, and that's what Diya and the media team are delivering.

Thank you. Your next question comes from Garry Sherriff from Royal Bank of Canada.

Good update 3 questions. 1 for Claire on the different payment options. Another 1 on synergies and a final 1 for Matan. If I start with the payment options, Just trying to get a sense around who takes the credit risk as an example for BNPL or other payment options versus getting paid immediately?

Sure. So I think in terms of as we look at our product portfolio, there is some credit risk, and we've had that factored into our financials when it's with us when it's on our rails, and we're offering that. We're obviously not providing like a bank funding, but there is obviously some loss risk factored into that.

So just to remind you that it isn't a kind of a credit risk as such, it's more of a loss risk, like an operational risk. So just think about it not in terms of bank credit but more in terms of operational loss risk. So that -- the operational loss risk to us, there isn't a credit or bank risk that we're taking in any of these payment methods.

Yes. Any if I can add -- so Milo or with the embedded solution, we don't provide any loans in terms of our own balance sheet or underwriting. We have partnerships that are enabling us to do that. But we do -- as Claire mentioned, we have payments and money movement, and that is the risk and compliance capabilities that we're very proud of and these are the ones that we built in-house and monitor all the money movement from both a risk standpoint and the compliance standpoint. But in terms of credit, as Claire mentioned, it's not pure credit where we provide loans. This is just payment, money movement, risk and compliant operations.

Okay. No, that's clear. Matan, while I've got you. If I had to go back to ground Xero, I mean if you had access to the AI coating power that's available now and continues to accelerate, how long do you think it would take you to replicate the Melio software platform as it is?

I think the infrastructure that Melio has built is 1 that requires a lot of investment, both across our infrastructure to do money movement at scale. And also in terms of the workflows and platform to enable all these partners and the stand-alone experience that we power today. I will say that Melio is benefiting greatly by leveraging a becoming better and better every day, every week, every month by getting more data on our customers on payments across risk and compliance.

And so our infrastructure today, because of AI is significantly better than what it was in the past. And so our competitive advantage is becoming stronger and stronger, not weaker and weaker.

One thing I think is important and I mean I think this goes across both Melio and Xero, so I think it's worth highlighting, Gary. Remember that at Xero as an example, our wiring is to thousands of banks, right? We have plumbing. Milo has a tremendous amount of planning. We have data plumbing, Milo has compliance plumbing, payment rails plumbing, if you think about the infrastructure to support the payment types into multiple other payment rails, this is not like just a workflow software.

I think this is quite important. -- we are -- both have deep infrastructure and plumbing. So I don't think, let's say, let's say you -- I don't know, went to an agentic platform and you coded the simple workflow of like, I don't know, the first screen of Xero. Great. I tried doing that on cloncode because I play with all these tools. At the end of the day, you're still going to need to hook up thousands of bank feeds. You still need to process the data. That data is proprietary.

We use it to train our models. That is the infra that makes us, I'd say, much stronger than just the workflow software, which we also are very proud of. It's very elegant. We're going to keep reimagining that software with AI. But I think the plumbing of payments and the plumbing of financial operations and the financial data that sits in our system, this is not something that I don't know, you're not going to knock on JPMorgan store with an agent and say, let me please. So I think it is important that the infra of our businesses are substantial value adds to our customers.

Yes, elegant don't disagree, elegant response -- and the last question just around synergies. Around the cost side, I mean, you did flag the consolidating of offices is done. -- and that you're also looking to do integration of shared services that's underway. Can we get a sense of the annualized savings on both of those and maybe the timing would be great.

Yes. I'm not going to share the exact details from each of those. What I would say though, compared to the plans that we set out when we did the announcement. We're very much on track to where we expect it to be. At this point, from an integration standpoint, end-to-end, including cost synergies. To your point, offices was 1 example, customer support alignment.

I think as we bring the go-to-market teams together, as we bring a lot of the support functions together over time, we'll continue to see ongoing benefits -- but we're on track. I'm not going to share the exact numbers, but we're on track to where we said would be we're going to continue to see those benefits come through in fiscal '27 and into '28 as well.

Your next question comes from Siraj Ahmed from Citi.

Just first one, maybe for Spine and Matan. On the overall U.S. growth was Xero, right, both accounting and payments -- now that you have Melo, you have the scale in the unit economics, like when should we expect a pickup in the U.S. growth Matan are there some stage gates that we should be looking at? Is it us still as it the brand spend we have discussed before business pick up from our perspective. When should we think about that?

So first of all, the underlying business is growing faster every half year. I'll remind you that the business -- when I arrived as CEO compared to last half where we grew 33% on an underlying basis. we're really proud of. And that growth is steady. That's because we think of ourselves as, although this business is money losing, and we've been very clear on that because we're in an investment mode, we still want to be disciplined allocators of capital.

So I think we're very happy with the U.S. growth rate on an organic basis. And what we said is we expect that to accelerate with Melio. That's because Melio itself is a high-growth story, of course, it's very high growth. We don't need them to be higher growth, quite frankly. They're already growing really well. But on the U.S. side, we've said that those revenue synergies imply that there would be accelerated growth because we think we can pick up more new customers from white space together versus a part with a fuller value proposition.

So that implies we see acceleration of U.S. growth, but the way we think about it is steady as she goes. and accelerating. So I mean I think that is our expectation. We don't believe that you need to believe in hockey sticks. You need to believe in steady acceleration of this business, and that's what the business model with Melio was predicated on.

And then the last thing I've said before is when you want to get those hockey stick type growth rates, I think we want them to be sustainable, which guides everything from how we invest in product to even when we decide to put the pedal on the gas and if we want to make a brand investment as an example, which would be a substantially further investment in U.S. CAC over -- but that would be a multiyear investment. So that's how we think about making these investments.

Yes. And I have to say someone Yes. Just to add a quick comment. As Melio has joined Xero officially 3.5 months ago. And I have to say like we've launched is coming -- some of that's coming from the outside, the velocity in which we launched the pilot and then reaching GA was beyond any of our expectations. We were a start-up that is moving fast, joining a bigger company. And so we had some expectation that maybe things would move slower, but the speed was pretty incredible. And so we're very proud at the velocity and quality of the product that we've launched to our customers.

And as Diya mentioned, it's reflected already with customer feedback that love the combination between accounting and financial services. Again, we were very confident always about the hypothesis of combining the 2 together. -- what customers want. That's what they say, but it's so great to see it live and so quickly after joining.

So Siraj, you had a clarifying question.

Yes. Just in -- I mean you are -- so you're sort of saying the big step up in brand spend, which is a gap in the U.S., that's not sort of there in the 2 sort of aspiration. You still will have I mean, you have more dollar gross profit dollars now to invest, but there's no step-up in the pack that you're thinking at this stage.

Well, what I'm saying is the U.S. -- I think the way to think about it is when we made the Milo announcement, it was predicated at it on steady acceleration of organic U.S. growth with our stand-alone business because of the synergies of adding the payments job and appealing to more customers and then, of course, Melio's own growth rate, but you didn't need to think about astronomical growth rates -- and that aspiration was without the expectation -- or let's put say, the commitment to U.S. brand spend.

Now as I've always said, U.S. brand spend is a choice for us. And as we are generating more efficiency in the core business, I think we will update you when we're ready to talk about U.S. brand spend. My point is simply the '28 aspiration was done without it. We want to be disciplined allocators but -- we didn't need to hockey stick our own organic growth model because we have been steadily accelerating think Melo accelerates the appeal of xero.com to U.S. users, independent of brand spend even further. But again, I don't think we're chasing hockey sticks on a 1-year basis.

I just have 2 more. So second one, I mean, all the AI destruction stuff, let's talk about going on offense on AI, right? I mean, like Diya said, this accelerating a product development you're hiring for a GM for mid-market. You could actually do your own payroll in the U.S. as well, but potentially with the new codevelopment and stuff like that. So -- how do you think about that? Like is it 0 in 3 years' time more -- does it need more app ecosystem if you can actually devitmore? But do you still think you used to work with partners or you can actually -- just kind on how you think about that?

Well, first of all, I'm very happy to talk about playing offense. This is when we talk about all the time at Xero I'd when say that's the mode we're in. I mean we are still playing offense. We are playing offense on the need to go after the U.S. opportunity is 1 of the largest SMB markets in the world. That is what led us to acquire Melia. We can all sit back and wait. But accounting plus payments plus payroll, we've been very clear. This is key to what U.S. -- not just SMBs worldwide expect and it led us to make a nonlinear move within the last 12 months.

Sift was an example of playing offense that predated but was a precursor to our AI investment. We were very clear that analytics and analytics cloud by AI would be in our future. And we moved fast to make that acquisition. On JAKs, we have moved very fast, not just to get invoice creation out the door, but as you've seen, to keep adding multiple agents orchestrating on the platform. And I think you can count on us to not sit still, like we consider all of these disciplined but offensive moves to go capture the TAM available to Xero, which is immense.

So I love that you're identifying even future moves we can make. Our job, of course, is to stay aggressive, stay offensive keep thinking about what drives customer value for this segment, we know and love deeply, whether that's a medium segment opportunity, whether that's payroll in the U.S., these are all opportunities for us. Our goal is, of course, to do that in a disciplined way. So we're going to stay aggressive.

We're going to keep trying to make the right moves for our customers. Of course, that all needs to fit into our capital envelope. We need to take measured risk and smart and thoughtful risk, and we're going to be stayed very lean for it on AI because we think we have the capabilities to be a net winner in this equation.

Just last quick one. Just on syndicated Director was indicated. I know that Claire mentioned syndicate a little bit similar in proportion but it does seem like there's a bit more focus on direct just wondering, has something changed on the syndicated side, like with maybe with is I know they're going to change is, as that onboarding been a bit slower -- and also no mention about embedded accounting as well, just keen to understand how you're thinking about syndicated whether something has really changed there?

Yes. I will -- I'll just kick off. What I would say is no change. So don't interpret any change in terms of the opportunity that we see for syndication over time. We always anticipated both the direct and this indication to grow fast, and that's why it's a great opportunity ahead. So no concerns on the syndication things are moving well as we look forward, lots of opportunity ahead. And we haven't -- specifically, we've always had in future opportunities about the syndication opportunity with accounting.

So as Matan said, we think we're 3.5 months in. So that's still on the table. It's just not necessarily a focus in the immediate term, but we are very excited about the scale revenue and gross profit dollars that we can get from syndication and just as excited now as we were 3 or 4 months ago. So yes, nothing changed and both give us a lot of opportunity ahead.

Yes. I think on embedded accounting specifically, if you call it the announcement, we said embedded accounting of Xero into Melio is syndication partners was future upside that we did not size into the aspiration because the syndication of bill pay is getting delivered and deployed now. And that is Melio's core focus, and we do not want to take their core focus off of first and foremost, delivering on that bill pay promise across bank and software partners. That is the basis on which we would, I think, get the benefit of that distribution if we want to embed accounting.

Separately, I think we announced at the half, if you recall, or we shared at the half, of course, that we at Xero, did an embedded accounting deal with BlueVine, we're really excited. It's our first embedded accounting deal. So while our, I would say, our subsidiary, melio.com, is deploying bill-pay syndication at Xero, we want to learn -- so that's very much an early learning deal for us where we have to build anyway, the connectivity and APIs to be able to do syndication at scale of embedded accounting.

So we've always said we are very open to embedding accounting in other stacks. But first Melio needs to build its bill pay syndication base and deploy it. Mean the 0 side. We're learning with our first partner, BlueVine, and that puts us in a good position. When Million its partners are ready and want to take embedded accounting or any version of it, we will always -- already have our first learnings. But that is very much a speculative bet. We said it at the announcement, and we said it was not included in the aspirations.

Your next question comes from Roger Samuel from Jefferies.

Just a very quick question on AI. If you look at your U.S. software comps, the revenue that they derive from AI is still pretty vile -- and you mentioned about being flexible in how you monetize AI. I'm just wondering, from FY '27 onwards, I mean, when can we start to see a material contribution from AI in the business? And what sort of percentage of revenue do you expect coming from AI over time?

So I think I'm going to hark into Diya's guidance. First of all, we will monetize AI. But our question is how do we keep it simple while future-proofing it. If you think about that and what our customers expect they'll expect if you think about simplicity and adoption, we'll have to think about what's bundled, what's consumption, what's not. So I think, again, we're going to keep looking at AI as a TAM expander over the next number of years. not a kind of 1 shot and done.

Some of that you might be able to see directly if we choose to monetize a portion of a consumption-oriented and some of you may see bundled in to our different subscriptions with different features. So that's the way to think about it. I don't know that I would offer any further guidance now on '27, then we've said that we will monetize.

Yes, I definitely think about this as a medium, longer-term play. It's about doing the right thing for the customers. We -- all of our pricing, including whether it's AI monetization or pricing in general is always focused on value to our customers, and that strategy in terms of approach hasn't changed. So making it simple, making it value-based, making sure that it gives customers the opportunity to -- for that adoption as Diya talked about, is definitely our priorities as we continue forward and think about the benefit that we can get from AR monetization but over, I would say, the medium to longer term.

Your next question comes from Andrew Gillies from Macquarie.

Most of my questions have been asked, but I'll just have a crack at. Sort of on Slide 25, it is my first question. Just the average gross profit per direct user there's obviously been a fair bit of growth historically. There's some good detail on TPV per customer as well. But it has seemed like historically, take rate has been a pretty material driver of that GP dollar figure that you mentioned, Sukhinder Skin -- can you maybe provide a little bit of additional color because that includes subscription as well. Like how much of it is mix shift? And what are some of the other drivers of take rate expansion that potentially are not reflected in that number that in your initiatives that we might see over the next few years?

Yes, sure. So yes, I think what we'd say, to your point, definitely an opportunity that we've seen in terms of improved take rate over time. But we continue to see that a future opportunity as well. So -- and I think we talked about the value that a customer has with us over time. And Matan talked about we have available all of the different payment methods. And we can, and we do see people adopting more of those options over time.

So I think the way that I would think about it though is TPV and scale and revenue, as I mentioned before, is key ultimately to our aspirations. It is key to that Milo EBITDA breakeven aspiration that we have towards the end of 2018. However, we do see that opportunity to continue that gross take rate opportunity over time, which does help us from a margin expansion standpoint as well.

I want to make sure that we answered your question. So something else on the slide specifically, you were looking to get answered. I just want to make sure if we missed the specifics of your question.

I'm just trying to understand the subscription is included in that. Obviously, this is kind of the last 3 years. So I'm presuming there's more upside. Like what does that sort of gross profit dollars per user actually look like as a percentage of the yes. indirect. As a percentage of sale of the serviceable addressable market, just trying to understand how you get that confidence in getting to '28 because there are some pretty material drivers there.

Okay. All right. So I think just to separate them out, obviously, and I'll just make sure -- and if I'm not doing justice to your question, I apologize, and we'll take another crack, so if you just think about our subscription gross profit dollars, those are going to be driven over time by 3 things, and I think you hit it. price rises, mix shift mix shift itself is driven by whether customers choose to take a product or additional products in a bundle or add-on setting, right?

So we have pricing and packaging choices as Diya talks about AI, shift, bill pay on Xero, we can choose whether we put that bundled or unbundled. But I think price rises and then increasing attach and that attach can come, again, you can choose to -- do you do it through a mix shift or you might choose to take something that also has a consumption basis, like payroll or is going to be consumption-based in the U.S. or payments in fact, is consumption-based.

So I think subscription gross profits are really driven by increased product utilization as expressed by you're on the same package and you get a price rise for the added value or you step up a package and take more features or you take more add-ons. That literally will be the way I think we express the dollar expansion in subscription. And then as we talked about on the payment side of the business, there's a whole payments driver slide, as you know.

And in that slide, we really talk about you want to deepen the TPV per Melio, how much per customer you're getting, I mean, as customers do more with you, it is a business of depth. -- where you're getting more TPV per user, right? So that's like more users, certainly, and then payment mix type is your take rate on any given transaction. So that is the way I would think about kind of the combination. The importance of context for LLMs.

[This call length has exceeded streaming capabilities – Please refer to the preliminary transcript that will be posted shortly.]

Thank you for standing by, and welcome to the Xero Limited 2026 Interim Results Conference Call. I am joined by Xero's Chief Executive Officer, Sukhinder Singh Cassidy; and Chief Financial Officer, Claire Bramley. [Operator Instructions]

I would now like to hand the call over to Sukhinder Singh Cassidy, Chief Executive Officer of Xero. Please go ahead.

Good morning from Sydney, Australia. Thank you for joining our investor briefing today covering Xero's financial and operating results for the half year ending September 30, 2025. I'm Sukhinder Singh Cassidy and I'm with Claire Bramley, our CFO.

Our first agenda item is the summary of Xero's performance for the half year. I'll then pass to Claire to cover our financial results in more detail before I finish with strategic priorities and Xero's outlook. After that, we'll move to Q&A.

So moving to a summary of our results on Slide 5. We are very pleased with our H1 fiscal '26-year results, which clearly demonstrates our sustained revenue momentum and execution against our strategy. We continue to achieve strong revenue growth across our 3x3 portfolio. This, along with another meaningful increase in profitability, enabled us to again deliver above the Rule of 40, demonstrating strong cash generation. I'm going to touch on the key metrics here, and Claire will cover them in detail later in the presentation.

Operating revenue grew 20% year-on-year to reach $1.194 billion or 18% in constant currency. This strong growth comes despite a tough prior period comparison.

Adjusted EBITDA was $351 million or up 12% year-over-year. Finally, our solid operating results and strong cash generation resulted in a Rule of 40 outcome of 44.5%, an increase of 0.6 percentage points year-over-year.

I'll now spend a few minutes outlining the regional contributions to revenue growth. We saw each of our largest markets, Australia, the U.K. and the U.S., make a strong contribution.

ANZ remains a core component of our portfolio and continues to deliver robust quality growth off a large base. You can see the sustained performance reflected in our results. We delivered 17% revenue growth year-over-year. This was the result of continued subscriber and ARPU expansion with subscribers up 7% and ARPU growing 12% year-over-year.

Australia continues to drive strong revenue growth, up 19%. Subscribers were up 9% year-over-year. Australia is making good progress in a highly penetrated market, continuing to add new features to support ARPU expansion while delivering solid subscriber growth off an already large base. Its GTM playbook is evolving to progress new customer mix. But as we've said before, moving the back book of existing customers is a longer-term opportunity.

New Zealand delivered quality growth in what is our most deeply penetrated market. Revenue grew by 8%, with net subscribers up 4% year-over-year. This is a positive result and ahead of economic growth in this mature market.

Overall, the performance of ANZ reflects the strength of our core market relationships and our ability to drive growth through strong execution and a focus on customer value.

Turning our focus now to the International segment, which covers the U.K., North America and our Rest of World markets. I want to note that this segment is fundamental to our future scale and is executing strongly against our strategic priorities. International revenue grew by 24% year-over-year.

Looking at the individual markets. In the U.K., we delivered a robust performance with 25% revenue growth. Subscriber growth remained strong at 13%. We saw early indications of tailwinds related to HMRC's regulatory changes flowing through. We anticipate the majority of the market benefit will come over the next few periods. We are excited as this will support subscriber growth, but we would remind you that there is a negative impact on ARPU as smaller businesses adopt our lower-priced compliance offerings.

North America continues its momentum, delivering 21% revenue growth despite the headwind of no revenue from Xerocon this half. Adjusting for this, growth was 26%, a great result. Subscribers grew 15%, a good outcome in what is typically a seasonally weaker half. I will talk about our Melio acquisition shortly, but keep in mind that the deal immediately provides a step change in the scale of our U.S. business and we're really excited about its ability to accelerate growth in the U.S.

Finally, our Rest of World markets grew revenue by 22% with subscriber growth of 11%.

In summary, strong execution in the International segment is building a solid foundation for sustainable, high-quality growth in these markets.

This slide brings the key financial outcomes together, showing how we are successfully balancing growth and profitability, while delivering above Rule of 40 outcomes.

We're consistently delivering EBITDA and free cash flow growth, which is contributing to strong cash flow generation. The free cash flow margin reached 26.9%, which you can see on the middle chart.

Adding this to revenue growth, where we use the 18% constant currency metric, resulted in our Rule of 40 outcomes increasing another percentage point to reach 45%. We are very pleased with this result, which demonstrates our ability to deliver sustained revenue growth supported by disciplined investment to grow profitability while at the same time adding value for our customers.

Before I hand to Claire, I want to briefly acknowledge the completion of the Melio acquisition in October. We're incredibly excited to bring our 2 businesses together, and I'll discuss this in more detail later in the presentation.

Now I'll hand over to Claire to walk us through the financial results.

Thank you, Sukhinder, and good morning, everyone. It's a pleasure to be here to present our financial results for the first half of fiscal '26. We have delivered another strong half. As Sukhinder said, our results show sustained revenue momentum across our portfolio of businesses and the effective execution of our strategy, allowing us to deliver another above Rule of 40 outcome of 44.5%.

Starting with revenue. We have a large recurring revenue base spread across a global portfolio, which enables us to consistently deliver strong top line growth. Despite the tougher prior period comparison, we maintained strong revenue growth this half of 20% year-over-year. Subscriber growth was 10% to reach just shy of 4.6 million subscribers at the end of the period.

ARPU growth was 15% on a reported basis, noting that our ARPU disclosures are based on the end-of-period foreign exchange rates. On a constant currency basis, ARPU growth was 8%.

The continued balanced growth in both subscribers and ARPU drives our AMRR, which I'll talk about on the next slide.

AMRR reached $2.7 billion. This represents a 26% year-over-year growth or 19% in constant currency. AMRR, like ARPU is calculated using end-of-period foreign exchange rates. The AMRR exit rate sets a strong foundation for growth. The short-term discounts and hedging are excluded from this number and will impact how this translates into full year '26 revenue. We saw both impact our revenue growth in the first half relative to AMRR growth.

We are continuing to deliver very healthy gross profit, with gross profit margins of 88.5%. The slight reduction year-over-year reflects our continued investment in our customer experience.

Now let's look more closely at the drivers of our 10% ARPU growth in the first half, which you can see on Slide 12.

Price changes reflect amortization of the significant value we have added to Xero from new features and capability improvements.

Price increases typically happen in the first half of the year by our Australia, New Zealand and U.K. regions. So we expect pricing to contribute more significantly to ARPU during this period. The specific price changes across our plans reflect a more strategic and segmented approach. This is evidenced by our decision to hold prices flat on all lower end Ignite plans in each of these markets.

Moving to product mix. We are seeing positive results from our go-to-market strategy with new customer mix incrementally improving in the U.K. and the U.S. as our targeted sales motions become embedded.

In Australia, there have been some headwinds as we added payroll back into our lower tier plans. This has seen some customer shift towards these plans. While overall, we have made progress on our new customer mix, as Sukhinder mentioned, back book progress remains an opportunity in the longer term.

Across all regions, we are continuing to evolve our direct go-to-market channel to support our focus on mix. We are successfully targeting higher-value customers through applying short-term promotional discounts and deepening our lead generation through avenues such as partnership and affiliate marketing.

Finally, platform revenue growth continued to drive ARPU expansion, largely due to strong payments progress. So let's turn to that. It is worth reminding you the payments contribution in the first half was entirely from our existing accounts receivable offering as the Melio acquisition did not complete until October.

We continue to see excellent momentum with payments revenue growing 40% year-on-year, mainly from continued strong TPV growth of 35%. This revenue have been generated across our 3x3 and reinforces our confidence in the value of providing integrated payments and accounting to SMBs.

Employees paid through Xero Payroll increased 5% year-on-year. This lower growth rate reflects the deep penetration and large existing customer base we have in Australia. We are looking forward to the opportunity to start driving payroll penetration in new untapped markets, such as in the U.S., where our embedded offering with Gusto goes live in December.

Now let's look at customer retention. MRR churn was 1.09%. This remains below our long-term pre-pandemic average of 1.15%. The slight increase from the last half, in part reflects our decision to incrementally allocate investment to the direct channel as well as target growth in our International segment.

As we've noted before, while these segments have structurally higher churn, they also typically attract higher ARPU customers, which aligns with our strategy to optimize the total value of each subscriber.

Our focus on the value of a subscriber is shown in our LTV, which expanded to $19.56 billion with LTV per subscriber increasing to $4,261.

With regards to our acquisition metrics, customer acquisition cost per gross add was $757, with a healthy and efficient payback of 15.2 months. The increase in CAC aligned with our strategic focus on attracting higher value subscribers to drive mix rather than just focusing on volume.

We are investing in data-driven tools and building our internal capabilities across digital performance marketing to drive our direct channel. We are also continuing to leverage our partner-facing teams to better support our accounting and bookkeeping customers. This resulted in an LTV to CAC ratio of 5.6, slightly down from the prior period, driven mainly by the ANZ region, which remains at an industry-leading ratio of 10.7.

Let's move to our operating expenses. The OpEx ratio, excluding acquisition costs, was 72.8% in the half. We have revised our fiscal '26 outlook and now expect the full year ratio to be around 70.5%. Within this, we've added Melio, adjusted for currency and importantly, realized some efficiency benefits while continuing to fund investments for growth.

Our capital allocation framework remains disciplined and returns based, which in turn aims to deliver improvements in efficiency, as you can see through our revenue per FTE, which increased 16% year-on-year. As we realize this efficiency, we are able to decide the proportion that we reinvest in line with opportunities we see and our Rule of X approach.

Now let's turn to the key investment areas for the half. Sales and marketing costs were 31.7% of revenue, a reduction of 0.3 percentage points year-on-year. This reflects disciplined investment in digital performance marketing as we continue to strengthen our internal capabilities.

Product design and development costs grew 18% year-on-year, equal to 28.2% of revenue. Gross product spend, which includes capitalized costs grew 24%, equal to 34.6% of revenue. This reflects our continued focus on product velocity, including hiring domain experts to support our new AI capabilities.

Our capitalization rate was higher at 47.4%. This was driven by more developer time being spent on releasing new products and features, many of which we announced at Xerocon Brisbane.

General and administration costs were 12.9% of revenue, an increase of 2.4 percentage points. As we flagged at our fiscal '25 results, this increase was expected and is primarily due to higher executive personnel costs associated with the accounting treatment of option and sign-on equity grants announced last year. The majority of these noncash costs are not expected to recur in fiscal '27.

Moving down to the bottom line. Our sustained revenue growth and disciplined capital allocation delivered an adjusted EBITDA of $351 million for the half, a 12% increase year-on-year.

Our adjusted EBITDA margin was 29.4%, down 2 percentage points, driven by the nonrecurring G&A expenses and investment in sales and marketing previously mentioned.

Adjusted EBITDA, excluding total share-based payments, improved by 0.8 percentage points to 38.8%, demonstrating the continued positive operating leverage in the business.

Our profitability and discipline translated into strong free cash flow. We generated $321 million of free cash flow in the half. This represents a free cash flow margin of 26.9%, a significant step up from 21% in H1 of fiscal '25.

The high-quality recurring nature of our business continues to deliver very strong cash realization from customers. Our payments to suppliers and employees grew only by 10%. This lower cash outflow relative to OpEx growth was partly due to the timing of some vendor payments as well as the higher proportion of noncash share-based payments.

We saw a $25 million increase in net interest received, reflecting the higher cash balances held prior to completion of the Melio acquisition. This benefit is temporary as we have now completed the transaction.

Finally, there was a limited impact from tax payments in H1 as we depleted prior year tax prepayments. We will enter a more normal New Zealand corporate tax payment rhythm in the coming periods, which will impact future cash tax payments. It's worth keeping these factors in mind as we head into the second half.

Our strong cash generation further strengthens the balance sheet. We ended the half with a net cash position of $3.2 billion, supported by the net funds raised for the Melio acquisition.

Following the completion of the Melio acquisition, our pro forma balance sheet shows a net debt position of approximately $0.5 billion with a pro forma net debt-to-EBITDA of approximately 0.9x. This reflects our commitment to maintaining a strong balance sheet while also creating a clear pathway of meaningful deleveraging. It also ensures we retain flexibility to continue pursuing our build, partner and buy approach to capabilities.

It is important to note that the shift to a net debt position will increase interest costs and reduce interest received in the second half of fiscal '26. This change in our balance sheet position will create a headwind to our Rule of 40 performance in the second half of the fiscal year compared to the first half.

With regard to the completion of the Melio acquisition, Slide 21 outlines the consolidated go-forward business showing Melio included on a pro forma basis for the first half of fiscal '26 compared to the same period last year.

The disclosure here is intended to help with the understanding of the combined business on a like-for-like basis. We won't be providing separate performance metrics for Melio going forward. Its revenue contribution will form part of the new U.S. region, of which you can find more details in the appendix.

In the first half of fiscal '26, underlying Melio revenue growth reached 68%, driven by the addition of around 7,000 new customers since the second half of fiscal '25 and by an increased usage per customer. Together, they delivered an 18% lift in underlying TPV. This strong growth will support the scaling of our U.S. business, as shown in pro forma revenue growth of 53% year-over-year.

Turning to profitability. Pro forma EBITDA reflects Melio's current scale and maturity. I'll walk through a few of the key drivers of this result and why we remain confident in the scale opportunity and the returns it can generate over time.

Melio's gross margin has been broadly consistent with fiscal '25. That's mainly due to the timing of product-led syndication additions. We are clear on the drivers to expand margin going forward through leveraging scale, syndication, payment mix and subscription growth.

Operating expense growth reflected a planned investment in sales and marketing to support this growth opportunity. We expect to see scale benefits come through as Melio continues its rapid growth.

There are also 2 future considerations not included in the pro forma that I want to call out. First, it doesn't reflect the shift to a net debt position or the noncash amortization of acquired intangibles we highlighted at completion.

Second, the accounting treatment of Melio's management earnout and incentive plans will add about $10 million in operating expenses in the second half of fiscal '26, which isn't reflected here.

The pro forma Rule of 40 came in at 39.8%, a really solid outcome. While it does face some headwinds from the shift to net debt, we remain very confident in our ability to deliver against fiscal '28 Rule of 40 and revenue growth aspirations.

To close, the first half has been another strong period of execution for Xero. We're delivering high-quality revenue growth, strong cash generation and remain well positioned to keep investing with a disciplined Rule of X framework to capture the significant opportunity ahead.

Thank you for your time. I'll now hand back to Sukhinder.

Thanks, Claire. I'll now talk to our FY '25 to '27 strategy and update you on a few recent news we've made. As you know, our vision and purpose are constant at Xero. Successfully delivering against these is key to achieving our aspiration, which I'll cover in a few moments.

Our winning on purpose strategy, which you saw us lay on Investor Day in February 2024, has 4 key pillars: win the 3x3; build a winning GTM playbook for Xero's next chapter; win the future, which is about focus best on innovation; and lastly, unleash Xero and Xeros to Win.

These 4 pillars are underpinned by our disciplined capital allocation framework for investment. This tightly aligns with our strategy, our Rule of 40 aspirations and our build, partner or buy approach to pursue organic or inorganic opportunities.

We're making great progress executing against our strategy with focus and purpose to deliver tangible value for our customers. We've made a number of moves in the last 6 months, which we highlight on Slide 24.

There are 3 key moves here that I want to spend some time on. Firstly, we continued our strong product delivery momentum through working hard to build product ourselves, but also through partnerships and our acquisition of Melio, which I'll discuss shortly. We've made significant progress this half in delivering important product features to help customers across our 3 largest markets, Australia, the U.K. and the U.S., to complete the 3 most important jobs to be done, accounting, payroll and payments.

A few of the key product highlights rolling out are Analytics Powered by Syft across U.S., U.K. and Australia as well as launching our new customer homepage currently in beta to give customers an insight rich view of their business performance. In addition, we're announcing today the beta launch of our embedded payroll solution through our partnership with Gusto to provide U.S. payroll capabilities.

Secondly, we implemented a series of changes to strengthen our go-to-market playbook. Our core focus has been increasing the sophistication of our sales motion to improve mix. As Claire noted, we've made encouraging progress on this, especially in the front book, and we're intensifying our efforts on the back book for existing customers.

Thirdly, we're allocating capital for long term as we look to win the future through strategic investments in AI and mobile. We're really excited about the next evolution of JAX, our AI financial superagent.

I'll spend some more time on this in the next few slides, but I'll call out one key highlight, which is our decision to partner with OpenAI to bring search capabilities for financial information inside the Xero product.

We also continue to improve the mobile onboarding process and make mobile payments easier by rolling out tap to pay and adding mobile bill upload and simple invoice template setup.

And we're also enabling our people to move faster for customers and do the best work of their lives, so we can unleash Xero and Xeros to Win. We're empowering all Xeros with AI education and tools to automate repetitive tasks, increase internal efficiencies and drive better value for our customers. We now have over 70% of engineers using AI in their daily workflows and nearly 50% of customer support responses are drafted by AI.

Alongside this, we continue to invest in our purpose and performance-based culture with improved employee development opportunities for all Xeros. So you can see our investment is disciplined and aligned to our strategy.

Coming back to our investment in AI. On the next slide, I'll talk to this in a little more detail. As a leading global SaaS business that has long been powered by machine learning and traditional AI, Xero continues to see AI and generative AI specifically as a significant opportunity to innovate and invest, all with the goal of unlocking significant value for our customers.

At Xerocon Brisbane in September, we were thrilled to announce the evolution of our AI financial superagent, JAX, Just Ask Xero.

JAX is built on Xero's AI agentic platform, which orchestrates multiple specialized subagents across Xero. Our vision is simple, to reimagine financial management using AI to help small businesses and their advisers work smarter together. This vision is supported by 4 unique pillars.

The first is reimagined experiences. We're leveraging AI to reimagine the Xero experience. The goal is to have JAX help our customers interact with Xero seamlessly across multiple touchpoints from xero.com and mobile to tools such as e-mail and messaging. We've already begun leveraging this strategy with the beta launch of our new homepage. It has JAX embedded in a customizable insight-rich design, quickly showing users what to focus on so they can take action sooner.

The second pillar is automated actions and workflows. JAX is designed to save our customers' time by automating routine tasks and workflows such as invoice creation and automatic bank reconciliation. We launched the beta for automatic bank rec in October, which tackles one of the most common and time-consuming jobs on Xero. Users retain full visibility and control via the new reconciled page. This single view allows users to see and understand JAX's reasoning, easily make corrections and manage supporting documents.

The third pillar is actionable insights. JAX unlocks advanced financial insight for our customers by combining data from their own business with information from connected apps. This also allows them to explore their data and dig deeper into their finances. JAX also brings them answers from beyond their business, incorporating real-time external data from across the web on topics like market trends, thanks to our collaboration with OpenAI.

The fourth and perhaps most important pillar is to be a trusted partner. JAX is built on a foundation of security, privacy and decades of accounting expertise, offering a trusted partnership to our customers. Its accuracy is superior to AI, relies solely on large language models. This ensures greater reliability and confidence in the output.

So to summarize, we told you at our last result, we have an ambitious AI agenda in FY '26, and you can see we're pursuing this and adding customer value at pace. We have strong confidence in the value of this technology. Our key focus for now is helping customers engage and realize that value. This will in turn further inform our approach to monetization.

I'm excited to dive into the next steps for integrating Melio, but first, let's quickly recap the powerful rationale behind this acquisition. It's what fuels our confidence in the significant value creation opportunity ahead.

First, there's a critical customer need in a large and growing market. SMBs and their ABs watch their accounting and payments together. It creates efficiencies, improves their cash flow and importantly, saves them time. And this is reflected in the significant TAM for U.S. SMB payments.

Secondly, the combination is a powerful strategic fit for Xero. Acquiring Melio aligns with our 3x3 strategy and gives us a step function change in our U.S. product proposition, scale and monetization opportunity.

Third, this is a best-in-class asset. Melio has a world-class team and platform. Many of you have already met Matan. The quality he and his team bring to Xero is significant, and this is demonstrated in the exceptional growth and strength of the Melio offering.

Fourth, and most importantly, together, Xero and Melio is a compelling value creation story. These are 2 complementary platforms that can drive significant scale together. Melio's growth trajectory in U.S. penetration uplifts our scale in the U.S. business from day 1 with much improved unit economics and a larger and stickier ARPU.

As this business continues to scale at pace and is powered by Xero's growth engine, we have strong confidence in meeting our aspirations and capturing a very attractive value creation opportunity, and we are moving quickly to accelerate growth and capture this value.

We are very pleased to announce our first key integration milestone, the launch of Melio bill pay inside of Xero, which is now scheduled for December 2025. This will immediately enrich our U.S. offering, providing small businesses with a seamless and powerful bill payment solution directly within the Xero platform. It will give Xero customers access to Melio's payment functionality to help them save time and optimize cash flow, including multiple ways to pay and visibility on payment times.

Our ability to move at pace on this integration is a testament to Melio's platform and the efforts of both the Xero and Melio teams to drive towards realizing the value of the acquisition.

In addition to this, we're moving quickly to leverage Melio's GTM capability and reach to drive Melio's stand-alone growth and cross-sell opportunity to xero.com.

I'd now like to move to our FY '26 outlook. As Claire said, we have lowered our OpEx guidance and now expect total operating expenses as a percentage of revenue to be around 70.5% in FY '26. As we have previously explained, there were some nonrecurring elements in this, and we expect the ratio to be lower in H2 than H1. This ratio now includes Melio but excludes the impact of transaction costs. Incorporating Melio provided a small benefit with other drivers, including improved efficiencies contributing the majority of the reduction.

Of course, in addition to this, we continue to pursue our aspirations which we updated when we announced the Melio acquisition.

We expect the combined business to significantly accelerate U.S. revenue growth and give us the opportunity to more than double Xero's FY '25 group revenue base in FY '28, and this is before synergies.

And we continue to anchor on our Rule of 40 aspirations and deliver a balance of both growth and profitability at the group level. This revenue growth outcome is anticipated to support the achievement of greater than Rule of 40 outcomes for the group in FY '28 with the dilutive impact in the interim as we continue to invest in Melio and as business scales. Our operations are strong and they are credible, and we're really excited about achieving these.

I'd now like to wrap up. There are 3 key themes from today's presentation, sustained strong revenue growth across our 3x3 portfolio, continuing to deliver a greater than Rule of 40 outcome with strong cash generation and the successful execution of our strategy, securing key wins across our 3 core priorities. This momentum is consistently enhancing the value we deliver to our customers as we continue our journey to become a world-class SaaS leader.

Before I conclude, I would like to acknowledge our teams around the world. And I really want to thank them again for their hard work as we continue to do all we can to support our customers and partners.

That concludes our presentation. I'll now pass over to the moderator for your questions.

[Operator Instructions] The first question today comes from Eric Choi from Barrenjoey.

Could I just do 2. Sorry, it sounds a bit of a long-winded one, but just the share price is down today, and I think it's because there's an implied accounting EBIT downgrade versus consensus. Just wanted to expect at an operational EBITDA hit and actually maybe an even top line upgrade. And so if you just bear with me on the logic, like if I look at your revenues and AMRR of the base business, it actually implies second half revenue growth is accelerating versus the first half, which consensus didn't have. And then Melio grew 68% on an underlying basis, and so market growth of Melio was below this as well. So revenues are clearly ahead.

And then on cost, and if we just take accounting D&A out of it for a second, you've actually lowered your core cost to sales, which offsets growth in the kind of Melio's gross margins holding flat. So at that EBITDA level, it actually doesn't need to move much. But then at this accounting EBIT level, which incorporates D&A, sell side, including myself we're kind at bad modeling amortization and purchase price amortization and all these other things. So just that D&A ends up being high and therefore, you've got an accounting EBIT business.

So I guess the overall question is, operationally, it's actually doing in line to better, but you've just got this accounting EBIT miss. Is that right?

Eric, this is Claire. So yes, thanks for your question and laying that rule out. I think the first thing I would say is we're really pleased with the strong execution that we've seen in H1.

And to your point, really strong top line growth coming from the Xero standalone business and then a lot of momentum as we move into the second half. So you're absolutely right. You can use that AMRR as a kind of foundation for that momentum that we see as we exit the first half, and then that really strong Melio growth that we reported, put those together for the second half. We're really excited about the growth opportunity, not just for the second half but also in the medium to longer term. So I think that's really important to note, and gives us a lot of opportunity.

From a cost standpoint, yes, I'll just double-click into the reduction in the OpEx ratio guidance that I gave. I just want to know, we have included Melio into that, but Melio does have a very limited impact. And also from a CapEx standpoint, we were anticipating in H1 that the CapEx rate would be higher. That is always aligned when we do like a Xerocon event. We published, as Sukhinder suggested, in our prepared remarks, we've been publishing a lot of new product features and great product velocity. So that was factored into our overall original outlook for OpEx.

So as you think about that reduction, that's actually coming -- little is coming from Melio. None of that improvement is coming from capitalization, and it's actually coming from other areas, the key factor being operational efficiencies but also revenue. So this should be a strong improvement from an overall EBITDA.

I'd stand to your point, in terms of rolling through that D&A. But I think it is really important that we are anticipating those capitalization rate to reduce in H2 and so that this improvement that we're seeing is really coming from underlying operational efficiencies, some currency and very limited impact from Melio.

Can I just do a quick follow-up, and I realize you never go into exact numbers, but just to kind of say future variance, just a rough framework for how we should all think about FY '27. I guess if you use your cost to sales guidance for FY '26, it's pretty easy to get to an EBIT number. And if you add some D&A back, you're kind of in the $740 million to $750 million EBITDA range for FY '26.

And then you've told us that $45 million comp impact falls out next year. And then obviously, you get operating leverage on any revenue growth that you deliver as well. I mean it seems like a fairly obvious question, but FY '27 EBITDA would still have to be in the 800s. Just high level, have I missed anything there?

No. I think as you think about the EBITDA, clearly, as you said, I'm not going to be giving an outlook statement for fiscal '27. But I think what I would do is kind of double down on the fact that we are continuously focused on that overall acceleration of revenue growth and remaining high revenue growth, and we see a huge opportunity with Melio.

If you add that into the fact that we are continually focused on efficiency, you've seen great, I think, historical track record in the last couple of years of Xero, reducing its overall OpEx ratio. And then I've done that, again, adjustments today with lower OpEx ratio.

And I think the advantage of that is that we're investing. We're continuing to invest in profitable growth, but also doing it in a very efficient way. And I think if you think about scale, you think about the excellent gross margin, I mean, we're above 88% on Xero underlying gross margin and you think about that OpEx efficiency ratio moving forward, a lot of good indications in terms of the opportunity ahead.

The next question comes from Bob Chen from JPMorgan.

Just a quick one on the churn. Obviously, it's ticked up a bit. And I think your comments earlier is that, that has been driven by that focus on business edition. I mean when we think about subscriber growth from here because of that shift towards focusing on business edition, you get that sort of high change, could we naturally expect your incremental subscribe from you just to be a little bit lower, but with better ARPU outcomes?

Thanks for the question, Bob. It's Sukhinder. So a couple of things. First of all, I think that, as we've noted, churn is still below historic pre-pandemic levels, and we feel good about kind of where churn sits overall.

I think a couple of factors are obviously driving that, that are ones to think about. While we don't break out the difference between the direct channel and the partner channel, we have said that direct is really performing. And that and the nature of that channel is that it does have higher churn. Performance marketing will bring more to the top of the funnel and more will churn out. In that, historically, our partner channel has lower churn and direct as we allocate to it, has higher ARPU, higher lifetime value, but also churn. So there's a mathematical reality. So that's the way I would think about it.

I also just think we continue to feel very good about our overall balance on quality of subscribers and quantity of subscribers. If you note, that is a very explicit shift that we made in the strategy on Investor Day. It was coupled with our long idle removal. And it really speaks to, like we're always going to be keeping an eye on the quality of the sub and obviously, continue to want to build share and look at overall absolute subscriber numbers.

So I'd say we feel very good about the overall trend, where churn level sits and recognizing that the direct channel will drive both a higher LTV customer but also higher churn mathematically.

Great. And just a quick follow-up to that. We've obviously seen ARPU increase significantly over the last few years. Has that also played into that sort of churn number as well?

In what regard? I mean I think the business edition is, again, driven disproportionately by our direct channel, and that already has a higher ARPU. So again, I'd say it's a mathematical outcome more than anything else. But I think when we talk about churn, it's not really about ARPU. It's about having a big performance funnel where you're inviting a lot of prospects into the product. And then you will see an increase when you do that, have that do paid motion for direct customers, you tend to see higher churn in the first 90 days as an example.

As more people -- lookie-loo is not quite the right example, but they're really just trying the product. Like I said, I think it's more a function of that than ARPU specifically.

The next question comes from Garry Sherriff from Royal Bank of Canada.

Just focusing on North America. The revenue missed market estimates, and it sounds like it's mainly Canada being weak and also cycling Xerocon revenue. I mean is there anything else we're missing there in North America? I mean was discounting higher than usual? Or is it just pretty much all Xerocon revenue that you're cycling?

Sure. I think there are 3 things. First of all, you are right, if you back out Xerocon, the underlying growth you feel very good about and then if you back out Canada, you get to something north of 33% -- about 33% growth in the U.S. And so I think it's a function of Xerocon.

Canada remains subdued. I think we continue to say that. Now you will have seen in this -- and in the last 30 days, there's been an announcement that open banking may finally be coming to Canada. We await that as a good positive, maybe momentum driver in the market. But to date, I'd say the move to cloud has been really suffering from lack of open banking.

And the other piece is, remember, H1 is seasonally a weaker half for the business, for the North America business, given when taxes get filed. So I would note that we felt particularly good given it's a weaker seasonal half. And when you look at that U.S. growth, it's, as I said, back out Xerocon, U.S. alone is about 30%.

Got it. Okay. And just a final one on Melio. Just wanted to clarify the numbers that you've reported. Does that include the Intuit subs that are to be exited? I just wanted to try and understand whether that was the case?

And if so or if they're still in there, can you maybe just remind us how many need to be exited and when that's expected? Because I'm just trying to get an organic like-for-like growth for Melio. Maybe you already reported. I'm just not clear myself.

Yes, no worries, Garry. I would point you to the disclosures in our Investor Relations. We have given it to you on an underlying basis. So as you look at that kind of the new pro forma numbers we've given for H1 of '26, you can see that, that on an underlying basis, that is increasing. So we have adjusted for the -- for that kind of syndication partner exiting.

And I think even on that underlying basis, you can see some really strong growth, both year-over-year and half -- over half both in the number of customers, in the TPV per customers, in the take rate. And I think we also mentioned that underlying revenue growth of 68% is clearly really, really strong.

The next question comes from Kane Hannan from Goldman Sachs.

One simple one. Just the comment in there around the combined business significantly accelerating U.S. revenue growth. Is that relative to the 49% pro forma number that you've done? Or is it more the 33% Xero stand-alone U.S. growth that you did in half?

Yes. I think if you look at the additional disclosures because you now see U.S. broken out separately and you see that in our appendix slide. So like you can see that the Melio growth in the first half is more than double our fixed Xero growth. And from a scale and volume standpoint, it's actually 4x. So yes, that kind of more than doubled you can see that just as we've disclosed those pro forma numbers in H1.

And all of our announcement came for -- to make a finer point on it. When we said significantly accelerate, remember, we were comparing to Xero stand-alone at the point of announcement, right? So...

Yes, that's helpful. And then just the comments on Melio's GP margin sort of being flat. They're calling out the drivers extension being firmly in place. I mean does that mean you should be thinking about margin expansion in the second half? Also what are we waiting for, looking for, for that GP margin to start to tick up if the drivers are in place?

Yes, I think there's multiple things to think about when you think about gross margin for Melio. You've got the benefit of scale and the additional margin dollars that come through. And clearly, when you've got a growth rate at 68%, there's a big opportunity there. And then there would be areas with regards to the margin expansion.

We are anticipating in the kind of short term, there to be a little bit of noise on the rate. But what we're pointing to is that we really do see those opportunities to expand both from a volume scale standpoint and a margin expansion over the medium to longer term, which gives us that confidence in hitting the aspirations that we laid out and getting above the Rule of 40 on a combined business in fiscal '28.

Yes. One other thing, Kane, I think, to Claire point, remember that there is margin take rates, and we talked about in this half, Melio having higher take rate products, improve like mix type of payments. So obviously, payment mix on melio.com is driver.

Let's also remember though that a lot of GP driver is syndication. And syndication, this is where Claire says there will be noise. When partners come online, your syndication line also has a gross profit and attractive gross profit. So part of it is what you do on melio.com. Part of it is the puts and takes of partners deploying. And remember, Melio does not entirely control when partners deploy. This is why we have a lot of confidence over the medium term and the guidance -- not the guidance, the aspiration that we gave for '28, but I would remind you that partner syndication timing is not entirely Melio's control. So this could create noise within a quarter or a half, certainly.

The next question comes from Roger Samuel from Jefferies.

I've got 2 questions. First one, just on ANZ. I understand that you to invest more into the direct channel, but the LTV to CAC ratio is coming down. I mean 10.7x is still a very good number, but it's coming off 14. And do you think that it's becoming harder to attract new subscribers into the base? And where do you expect the LTV to CAC ratio to land?

Sure. Well, first of all, I think, Roger, you hit the key point. 10.7 is still a very attractive number. And I think it's fair to say when you're in a market that's very saturated, where you have high brand awareness, on a marginal basis, the next customer may be more expensive than last one. On an absolute basis, it's still attractive to go get them. And that's exactly what you see in our numbers.

So we always need to make a call. Unlike look, on a marginal basis, would we rather pay this for the next customer, not get it, and our choice continues to be, we're going to be very mathematical. And if there is another subscriber to go get on an absolute basis, we're going to go after it, and we continue to see that opportunity.

Now over time, I'm not going to give you an LTV number today. But as you know, we've also included that over time, we see the to further penetrate this market with more mix. We also see the opportunity to drive more attach of payments and other products. We just announced BGL and Workpapers. So we're going to continue to also drive I'd say, more penetration of different products for ABs and SBs through this business that over time, we hope continues to accrete to LTV.

Okay. And maybe a follow-up question on Melio. So if I back out Xero stand-alone looks like Melio incurred losses of about $56 million in the first half '26 on a pro forma basis, that's lower than minus 60% in the PCP.

So I suppose the question is, when do you expect Melio to be breakeven? I mean if you look at the guidance which is yet to reach a Rule of 40, you're pretty close to that Rule of 40 already as a combined business, plus or minus the adjustments to interest expense and earn-outs. So yes, just wondering when you can expect Melio to -- Melio business to be breakeven?

Yes, I'll take that. So first of all, to your point, we did have a great combined Rule of 40 result in the first half. But as I mentioned in my prepared remarks, there are some future impacts that will negatively impact that as we move forward. However, we -- I think all of these numbers just give us that confidence in the profit opportunity that we see ahead in the Xero and Melio combined business.

I think we're not going to give an exact date in the sense of when does Melio become profitable. I think we're months into owning them. We are extremely happy with the performance that they had in H1.

The integration of the business into Xero, whether it's the getting that go-to-market, those go-to-market opportunities running, whether it's the product announcements and the Melio on Xero coming out in December, there's so much progress being made, which just gives us that extra confidence to deliver on those aspirations.

And I think I'd come back to the fact that we are very optimistic about the opportunity from a profitability standpoint that we get from both the scale but also that margin expansion, but it's over time.

The next question comes from Rohan Sundram from MST Financial.

One for me. On the operating environment, how are you seeing the state of demand from SMBs at the moment? And how would you compare it to 6 months ago and whether there's been any changes or improvement?

Thank you for the question. First of all, I'd say we see continued good demand, strong demand for the Xero product. And I think when we look out to indicators like XSBI, which as you know is our data set, we just published Australia and New Zealand results as well as -- and what we saw in both markets as well as the U.K. is Australia showing nice signs of recovery, New Zealand showing some signs of recovery, U.K. holding steady. And then in the U.S., we haven't published our next generation of XSBI yet, but we look to the NFIB Optimism Index, which stays at sort of all-time highs despite, I would say, that optimism index also showing a lot of uncertainty.

So from what we can tell on the macro, there is some signs that Australia and New Zealand sentiment is getting better among SBs when we look at their real-time sales data in XSBI. U.S. optimism remains strong despite uncertainty and, as I said, U.K. holding steady.

The next question comes from Nick Basile from CLSA.

Just a first question on Melio. I just want to clarify, I think one of the points Sukhinder made around integration. Can you talk to, I guess, what your expectations were on that. I think you mentioned bill pay was coming in December. Was that 2025 or next year?

And then just in general, how you're thinking about Melio's performance in recent months relative to your longer-term targets to double revenue? I guess just one confirmation that you feel that the business is on track to help support that goal?

Sure. Well, first of all, we feel very good about the integration. As you can imagine, I would say, the integration of Melio bill pay into Xero actually gives us more functionality than we currently have with the partner that we're exiting, and it was done faster than anticipated.

So I would say we feel really good about the integration. And I think that's a testament actually to Melio's platform. It is very easily integratable. And obviously, our teams started planning for this summer. So I think that we're really happy to get out a richer product functionality in both workflows and bill pay into the Xero product this soon. So that's December of this year, less than 30 days away.

Number 2, I think when we look at Melio, what we've said is Melio performed in H1 in line with our expectations. And so we're really pleased about that.

Yes. I think I'll just double down on our confidence in meeting those longer-term aspirations. I think the performance that we've seen in the first half and the momentum that we've got going in the second half and beyond just gives us even more confidence in being able to be more than double our fiscal '25 revenue in fiscal '28, excluding synergies and back above the Rule of 40 by fiscal '28.

Yes. No, that's very clear. I think from my perspective, December 2025 sounds like you're ahead of schedule. That's why I got that clarification.

The second question. On operating leverage in the core business kind of if you think about it, whilst we still can, excluding Melio. The guidance feels like the ability to provide lower OpEx to sales, as you called out, is being driven by some degree of operating leverage or cost efficiencies in the core business.

Can you just help unpack that in a little bit more detail? And again, as that '26 guidance kind of relates to the '28 sort of 3-year glide path to maintaining Rule of 40 whilst you're embedding Melio, which is currently loss-making?

Yes, absolutely. So that 70.5% new OpEx ratio is incorporating Melio. I'll just remind people that Melio does have a slightly different P&L to our Xero core business in the sense of the margin and the OpEx ratios are slightly different. So there's a slight benefit but it is limited from incorporating Melio into that 70.5%.

The key factor I would highlight of that reduction is those operational efficiencies. And it was good to be able to drop those benefits through to the bottom line. And I think it's something that I -- we're really focused on here at Xero, and you've seen it in our historical trends is continuing to drive operational efficiencies at the same time as we're investing back into growth.

And I think you can see that in our H1 results and the momentum as we go into H2, strong revenue performance, strong operational efficiencies at the same time as continued investment. And that's a philosophy now we're executing against that, and we'll continue to focus on that as we move forward.

And sorry to make you clarify, but just when we're talking about operational efficiencies, should we be thinking more about product development side, sales and marketing or sort of equal mix of both or G&A? What sort of buckets are we seeing that benefit from?

Sure. So I think there are 2 things, this is Sukhinder, driving the operational efficiency. First of all, I think while it will show through in all those ratios. Number 1, I'd say headcount discipline, speaking frankly, like just being clear on the allocation of capital when we sort of -- when we think about fixed costs, our fixed cost base, we want to be clear that like when we add to our fixed cost base, that we believe it's adding in places that drive revenue leverage, right? So if we're going to add FTEs to product, we want to know that there's a clear line of return to building products that will -- that customers will value.

So I'd say it's about being very kind of, I'd say, while we are -- we'll continue to grow our cost base, it's the allocation of our fixed cost dollars to the things that drive real value for customers. That is like a very clear way that we think about driving increases in our cost base.

Number 2 is, it's very, very early days for AI internally, but I would say we are encouraging productivity usage by our employees to really get more work done through all of these tools and capabilities. And so I'd say we're really pleased, if you look at some of the numbers we reported. I would say Xero's adoption of AI, whether that's in P&T or sales and marketing, where they're creating more assets using AI or the average Xero who's using things like Gemini, and I'd say, improve their mastery of their work and save time. I'd say that is like -- it'd be hard to put a percentage on it, but I'd say that's another operational efficiency push we have here.

And all those things drive through, we think, improved revenue per FTE, right? So that is a core metric that we use as a guide internally for like how are we creating operating leverage.

So we want to come -- always come back to like what's the use of those efficiencies. For us, it's the ability to reinvest in the highest revenue growth opportunities and customer value opportunities. But that's sort of where the efficiencies are coming from, if you like that way.

The next question comes from Siraj Ahmed from Citigroup.

Can you hear me okay?

Yes, we can hear you fine.

Yes, yes.

First one on Melio. Sukhinder, just to comment on [Technical Difficulty] something that's slowing there from that whole rollout of CashFlow Central?

And the second part on Melio, I mean, can you give us a view on annualized revenue at the end of the half, just to look at second half revenue and whether some of the CashFlow Central revenues is coming through in the second half, right?

So Siraj, you broke up for quite a while there. I think you were asking about CashFlow Central and Fiserv rollout. Is that correct?

Yes. So just -- sorry, my network is not great. Just in terms of -- you sort of said syndicate partners are not within your control, just wondering whether something slowed with Fiserv [Technical Difficulty]?

Because you're breaking up again, I'm going to take my best guess at answering this question. And obviously, we can follow up offline if we don't get it right here.

I would say that we are -- we continue to be very excited about CashFlow Central and Fiserv, and so are they. I think if you look at even their own commentary on the importance of this product, it is in their encouragement of their own customers to roll out and adopt, it's quite strong. All I noted is its timing, right? On any partnership, it's always about the timing of those rollouts. So that was my point more on short-term noise.

When somebody said, well, what are we waiting for? You could be waiting for a partner to deploy when it comes to within a half or within a quarter. That was my only commentary. But I think we continue to feel very excited about CashFlow Central, so does Fiserv, and I think they see it as a very important part of their stack.

The next question comes from Paul Mason from Evans & Partners.

I had maybe a follow-on to Siraj's question there. Just are you able to provide any color on sort of how many banks Fiserv has been able to convert across so far was my follow-up.

And then I was hoping you guys could comment a bit on thoughts around AI monetization, whether you've sort of settled on potentially using tiering or add-on or just embedding it in the core price over time as to how you monetize, that would be great.

Got it. Why don't I start with the AI question and we'll come back to the other. So I think on AI, I think what we've noted is we are not monetizing AI this year explicitly. I think we think the pricing model is still early. We're seeing others take a combination of approaches. Some are doing consumption-based, some are doing tiered. I don't think we have landed, Paul, yet on what model we will use this year.

For us, it's all about rolling out those key features like auto bank rec and getting utilization. But I don't think we have landed on a model yet. I think we'll have to find, I think, the cornerstone between simplicity and also the opportunity to make sure that the model of pricing reflects the value delivered, and this is going to be the balance.

So right now, I think on Fiserv, Fiserv has talked publicly. So I think what we can talk about is what they've talked about with 96 partners signed up since 2023 and 20 implementations underway. So those are Fiserv's own numbers, and that's all we're allowed to disclose.

The next question comes from Andrew Gillies from Macquarie.

Can you hear me?

Yes, we can hear you.

I was just hoping you could expand on the commentary on improving mix, particularly in the back book. You mentioned some traction on the front book. And I think in the deck, there was some commentary around more sophisticated sales motions. Like what are the opportunities there in the back book? And how can you address those?

Sure. Great question. So I think as we noted when we were at Investor Day, I don't know, about 18 months ago, the first thing we needed to do, and I think we've made good progress there, is get our sales teams to also be incented to drive value, not just volume.

And the first moves have really been about improving the mix between PE and BE, business edition, in the front book, and we feel quite good about those. I think that the sales teams have made noticeable inroads. I think you can see it read through even in ARPU. You can see some mix shift in ARPU. And I think that -- and that's both a combination of our direct business as well as movements in the front book on the partner channel.

I think the back book is a longer move because you've got only 4.5 million customers now. And so even if you move an increment to them, to move the entire ARPU stack is quite hard. And what you're really doing is learning new motions, and you're learning new motions with new features.

So when we say it's more complex, we're giving our sales teams training on Syft. Syft just rolled out in all of our products. So now our sales teams are learning the different Syft features available at different levels of plans. And a reminder, then you need to go to your back book and figure out which of their customer cohorts are even eligible for the right candidate. So you're now looking at a combination -- I mean these are very specific motions, right, about sales teams knowing the products, but also cohorting your back book to even identify who's eligible for upgrade.

So this is why we say it's a set of sophisticated motions. It's both data, it's orchestration, it's sales education, it's sales incentives. These are the kind -- and that's just on Syft, then you think about payments. In the U.S., you think about Melio. So when we say sophisticated motions in back book, we mean it's often a combination of segmentation, orchestration, digital marketing, physical marketing, sales training, sales education, sales incentives.

Now you get hopefully, a picture of why we say the back book is a set of more sophisticated motions and orchestrations that unlocks over time. So I don't think you're going to see some dramatic one-half shift in ARPU, it's going to look more like steady motion and unlocking cohorts of customers who are eligible and the right targets for some of these products.

Perfect. And then just a quick follow-up to that. I mean we've spoken about improving back book mix. But if I think about the significance of the Melio launch in December, you've got the Gusto beta going live soon. It seems like delivery is coming forward.

The extent of churn to reduce as you get complementary software products being sold to the same customer. Like have you done any internal modeling on like the impacts to LTV or how you should think about the economics and how maybe we should start thinking about that?

We've done the modeling, yes. I think we -- this is what gives us comfort in providing the overall aspiration. If you recall, and I think you hit the nail on the head, when we think about Gusto plus payments plus accounting together in one stack, a, you have the opportunity to play from an ARPU. And in the U.S., which actually has the smallest back book, right, just by virtue of its size, you're playing as much to win the next customer as sell through the back book.

And so yes, I mean, our ability and confidence to give the aspiration statements we did was built on revenue synergies in both better front book acquisition with more to play for on ARPU plus Melio stand-alone business, plus some penetration of the back book. But as we said before, in the U.S. specifically, it's probably far more of a front book opportunity just given the size of the back book is not that big.

The next question comes from Lucy Huang from UBS.

I've got 2 questions. Sorry, another one on Melio. You guys mentioned that Melio bill pay will be available from December 2025. And I think Andrew just mentioned Gusto integration is on the way as well with the beta version. How should we think about -- is there going to be a change in go-to-market strategy with Melio in the U.S. come end of this year? Should we think there'll be a bit more brand marketing to sell that there is extra functionality? Or are you still going to focus on performance marketing in the short term?

Sure. Well, first job, as you noted, is get that bill pay product and Gusto product out and we noted Gusto's beta. So our first job is like get customers on the product, make sure they're happy with it. That is the job of this year.

As we think about the go-to-market motion, I think we have optionality on brands, but let's also just talk before we talk about the optionality on brand to talk about the integration of our GTM teams.

One of the things we're excited about is we do have more sophisticated GTM motions than the Melio team. We have a bigger team. And I think part of the improvement in performance is our ability to obviously performance market, not just xero.com but also melio.com, improve the performance marketing there, and bring our muscles there. We have a very good performance marketing team, which alongside theirs, we think, can improve even exposure of performance marketing to their brand.

Number 2, we've got our AB sales force also able to introduce Xero plus Melio, but also Melio. If the customer only wants Melio, that is another synergy opportunity.

So I'd note, first and foremost, the integration opportunities in performance marketing and in the AB channel are not to be overlooked. Those are first yield opportunities.

And then I think if you've looked at the OpEx guidance for this year, we're happy that we're able to realize more efficiency in the core because it gives us the optionality to think about what to do on brand, right? We talked a lot about that, hey, we'd like to be able to reinvest to growth areas. We've talked about brand being an opportunity for '27 that we're looking at. And I think if you put those 2 together, we're excited.

And then just one last one for me. I think you mentioned -- made a comment around having to include payroll into Australia into the lower end plans, and we saw a bit of spinning down from customers.

Just wondering whether that is going to change? Or how are you thinking about product mix being a bigger driver of ARPU growth moving forward? Or should we see product mix being a more slower and steady contribution over the next few years compared to, say, the last 2?

Yes, it's a great question. So first of all, I think you were right to note the very deliberate decision to reinclude payroll and our lower plans. That was really a reflection of us taking in customer feedback and basically saying, okay, let's make sure we're doing what's right for the customer. So we reversed that decision.

So that would have led this year, obviously, to a bit of pressure on ARPU in Australia as more people then went back to those plans. So that's kind of a short-term effect. I think the way to think about ARPU long term in Australia is, I'd say, very steady as she goes, when it comes to improving front book attach. But remember, Australia has a big back book.

So this is a place where it will be very much those sophisticated motions we talked about across both Syft and payments in Australia, leading to sort of consistent, kind of steady ARPU improvement. And then, of course, every year, what we decide to do on price is a big factor in ARPU in any given year. This year, we made a very deliberate choice. In addition to adding payroll back, this year, we did not take up the price on our bottom-most SKUs in Australia. So that's pretty notable in this year's ARPU, right, for Australia. It did not include a price rise on the bottom 2 SKUs.

Yes. And so in terms of ARPU growth in Australia for this year without the bottom plan price rises, like where would the growth come from?

Yes, we did make -- as we said, ARPU is a factor of a mix of items in any given market. This year, ARPU would be a mix of the plans that did get price rises in Australia, front book and back book, any mix improvements. It would be a function of payments attach. Remember, we have a big invoicing business. where we are attaching payments also to invoice volume. And that business grew last year -- this year, it grew 30%. I don't have the numbers handy. Somebody remind me what it grew. It is more like...

35%.

35%, sorry, guys. I was just grappling with the numbers in the deck, among all the numbers we have.

So remember, we also have payments attach of our invoicing payments in that number. So those are all the contributors that are -- and then we have currency effect, obviously, at the group level, also creating some ARPU movement.

The next question comes from Sriharsh Singh from Bank of America.

I've got 2 questions. One, can we -- just following up on Xero and Melio integration time lines. And wondering how long would it take you to integrate the Xero accounting solution into CashFlow Central product suite? And do you need a full integration on that to realize the real full benefits of cross-sell and syndication network?

And just on that time line, I'm wondering if the CashFlow Central integration could happen faster than the Syft Analytics integration, which you've just done and rolled out?

And second question, the latest round of pricing increases was really interesting. You kept pricing flat for the lower-end subscription plans. However, the higher-end plans have gone up by 11% to 15% in Australia at least.

So should we expect more of that? And what do you need to grow with the higher-end customers? Do you need some M&A there? Or do you think you have a product which can allow you to grow with the top of the funnel customers?

Okay. I think there were 3 questions in there. So let me take them in hand. First of all, I want to take the Melio integration question. You might have noted in the half that Xero announced its first embedded accounting deal with Bluevine in the U.S. This is the first time we are embedding our accounting stack in someone else.

And we talked on the Melio announcement about the opportunity to also, if appropriate, embed Xero in the Melio stack. Now keep in mind, that was, we said, upside to the plan. We didn't say that. We said that's something we're going to do, but we didn't factor into our numbers because we needed to figure out which of Melio's customers would want embedded accounting. Some of them might just want bill pay. Some of them might be happy to do a referral deal and some of them might want to have accounting in their stack.

So we always talked about that as experimental and upside, and that's the same way we've talked about the Bluevine deal that we just announced. We're really excited to get it out and see what it does. But I would say we factored it into our financials. So that's -- I'd say, we'll see where that goes, and we're excited to innovate and try.

Number 2, on Australia, as you said, you noted that we were more granular in our pricing moves. I think you can expect us to be more granular. At any point in time when we do pricing, I think we have moved in the last several years from like a one-size-fits-all price rise to very much by segment, by market, looking at the features we've launched our competitive placement in market, and we like that. I mean I think the customer deserves that granularity. So we made granular decisions and I think we feel like we always want to be looking at kind of a positioning range of different segments and SKUs in market against the alternatives and for the value we've delivered.

And that leads to Point 3, which I think is about you noted that we did a double-digit price rise on our higher end. Look, when you look at the value we deliver at Xero compared to the size of that customer and willingness to pay and the type of features and delivery, I mean, think about the fact that we have now multiple levels of Syft functionality across our plans.

I mean these are products that if you were to buy them stand-alone, would be expensive in their own right, a lot of the functionality that we're now incorporating into our higher-end plans. So I think willingness to pay always factors into how we price as well as the product feature delivery, which I think leads to your last point B, is there more to do in the higher end?

Yes. I think there certainly is. We see customers who are on our top SKUs, and we have relatively low penetration of our top SKUs even in a place like Australia with a lot of room to deliver more features and functionality. They ask us for things like transaction limits or permissions or multi-entity reporting. By the way, multi-entity reporting is in within Syft, multi-entity consolidation. There's a long list of features that I think are still opportunities for Xero to go drive higher penetration in -- of those top higher-end customers and our higher-end SKUs.

Thank you. That does conclude the Q&A session. I'll hand the conference back to Sukhinder for closing remarks.

Of course. Thank you again to everyone who joined today's call. We appreciate the time and the support and of course, look forward to connecting again soon.

Thank you for joining the Xero Limited 2026 Interim Results Conference Call. If you have any further questions, please contact the Xero Investor Relations team. If you are a media representative, please reach out to the Xero's Corporate Communications team.