#1Investor Briefing Full year results to 31 March 2020 14 MAY 2020 xero Beautiful business . 19 20 21 40 41 B 考 43 44 45 109 110 111 112 113 114 115 116 117 118 119 Orenda Tribe | United States#2Important notice This presentation is given on behalf of Xero Limited (Xero) (ASX:XRO) (Company number NZ 183 0488, AU ARBN 160 661 183). Information in this presentation: . . ● is for general information purposes only, and is not an offer or invitation for subscription or purchase of, or a recommendation to invest in, Xero securities should be read in conjunction with, and is subject to, Xero's latest and prior interim and annual reports, including Xero's annual report for the period ended 31 March 2020 and Xero's market releases on the ASX includes forward-looking statements about Xero and the environment in which Xero operates, which are subject to uncertainties and contingencies outside of Xero's control - Xero's actual results or performance may differ materially from these statements includes statements relating to past performance, which should not be regarded as a reliable indicator of future performance may contain information from third parties believed to be reliable, but no representations or warranties are made as to the accuracy or completeness of such information includes Non-GAAP measures as we believe they provide useful information for readers to assist in understanding Xero's financial performance. Non-GAAP financial measures do not have a standardised meaning and should not be viewed in isolation or considered as substitutes for measures reported in accordance with NZ IFRS. These measures have not been independently audited or reviewed All information in this presentation is current at 31 March 2020, unless otherwise stated. All currency amounts are in NZ dollars, unless otherwise stated. Due to rounding, numbers in this presentation may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures. See page 34 for a glossary of the key terms used in this presentation. 2#3Agenda Business update Financial results Steve Vamos CHIEF EXECUTIVE OFFICER Kirsty Godfrey-Billy CHIEF FINANCIAL OFFICER Strategy update Steve Vamos CHIEF EXECUTIVE OFFICER Outlook Q&A 3#4Business update Steve Vamos CHIEF EXECUTIVE OFFICER ** Rush Hour Media | Hong Kong 4#5How we're responding to COVID-19 Supporting our people to ensure their safety and wellbeing • Offices closed globally and all staff working from home • Remote working technology, communication tools and wellbeing support • Restrictions on travel and in-person events, cancelled Xerocon Sydney 2020, fully virtual annual general meeting Helping customers and partners with immediate needs • Xero Central as our main customer support centre, with a business continuity hub for live webinars and other targeted resources at central.xero.com/s/business- continuity • A dedicated customer response team available 24/7 for case-by-case guidance • Deferral of planned price rise • Ensuring quality and continuity of Xero's cloud- based platform Prioritised product development • Extending pilot access of Short-term cash flow and Business Snapshot features to all Business Edition customers • Simplifying and automating payroll and tax changes to help small business with reporting data, proving eligibility for and accessing government stimulus benefits • In-product prompts and reminders to help stay on top of government initiatives 5#6The COVID-19 environment What are we seeing? Overall, Xero usage levels have remained relatively steady during 2020 calendar year, as measured by subscriber login activity Subscriber additions slowed towards the end of March 2020. All regions impacted with UK to a greater extent Initial analysis of Australian subscribers indicates sectors most impacted were hospitality, and arts and entertainment Weekly login activity YTD What are we hearing? Xero voice-of-customer surveys indicate most have been significantly impacted by COVID-19, with many foreseeing a negative business outlook Main concerns of small business customers: • Managing cash flow • Digital tools and the need for rapid up-skill Retaining and motivating staff • Work-life balance What are customers doing? Some actions small businesses are taking: Business continuity planning, protecting employees Managing cash flow and capital resources, accessing government stimulus packages Widespread adoption of digital tools such as videoconferencing and e-commerce platforms Adapting and pivoting business models and services to respond to new market dynamics COVID-19 declared a pandemic by WHO Jan 20 Feb 20 Mar 20 Easter holidays Apr 20 Weekly total subscriber logins for first full seventeen weeks of the 2020 calendar year 6#7Continued global growth drives FY20 results SUBSCRIBERS ARPU AMRR TOTAL LIFETIME VALUE 2.285m + 467,000 YOY $29.93 +2% YOY (-1% in constant currency) $820.6m + 29% YOY (25% in constant currency) $5.5b + $1.2b YOY OPERATING REVENUE EBITDA $718.2m + 30% YOY (29% in constant currency) $137.7m + $64.6m YOY NET PROFIT AFTER TAX FREE CASH FLOW $3.3m + $30.5m YOY $27.1m + $20.7m YOY 7#8Xero's global footprint FY20 Australia New Zealand United Kingdom North America Rest of World Subscribers 914k +26% 392k +12% 613k +32% 241k +24% 125k +51% Revenue $320m +23% $116m +19% $184m +54% $55m +25% $43m +43% >50% cloud adoption¹ <20% cloud adoption¹ 1 Estimated adoption rates across English speaking addressable cloud accounting markets, based on publicly available data#9Australia and New Zealand highlights Australia • Single Touch Payroll accelerated digitisation of payroll compliance • Enterprise partnership announced with RSM Australia, a leading national accounting firm • Enhanced partnership with Square to further embed payment and PoS transactional features and functionality • Launched Xero NAB Payments to help automate multiple bill payments, and received a Canstar Innovation Excellence Award for 2020 • Revenue growth of 25% YOY constant currency New Zealand • Continued positive ARPU trends driven by emphasis on additional platform solutions and product upsell • Strong traction from new roadshow approach to include direct small business engagement contributed to >1,500 small business attendees at roadshows nationwide, a near threefold increase YOY • Launched 2019 Small Business Wellbeing Report and extended the Xero Assistance Programme to an estimated 850,000 Kiwis FY20 YOY change Subscribers 914k +26% Net additions 188k +31% INNOVATION EXCELLENCE CANSTAR Revenue $320m +23% 2020 AWARD FY20 YOY change Subscribers 392k +12% Net additions 41k -18% Revenue $116m +19%#10International highlights United Kingdom • Making Tax Digital (MTD) continued to contribute to performance • Launched first phase of Xero Tax, activating proven ANZ compliance product strategy • Investment in readiness for Open Banking • Two awards won for Xero Expenses (AccountingWeb Software Excellence Awards, Digital Accountancy Awards 2019) • Revenue growth of 50% YOY constant currency North America • Continued growth in estimated partner channel capacity to almost 1.5 million small businesses • • Signed new partnership agreements with number of large national accounting firms in both Canada and the US New Toronto office strengthening presence in Canada • Revenue growth of 19% YOY constant currency Rest of World • Launch of e-invoicing by Singapore Government from January 2020 a catalyst for SME digitisation • Enterprise partnership with leading Malaysian accounting firm YYC Advisors to migrate SME clients onto Xero • Strong progress in South Africa, executing the partner-led market development playbook • Revenue growth of 36% YOY constant currency FY20 YOY change FY20 YOY change Subscribers 613k +32% Subscribers 241k +24% Net additions 150k -1% Net additions 46k +5%¹ Revenue $184m +54% Revenue $55m +25% 1 excludes acquired Hubdoc subscribers in FY19 FY20 YOY change Subscribers 125k +51% Net additions 42k +68% Revenue $43m +43% 10#11Driving growth through the platform FY20 revenue composition Core accounting Platform revenues' WorkflowMax² Non-recurring³ Group operating revenue $718.2m FY20 revenue growth YOY 30% Group operating 28% revenue growth 89% 2% 2% 7% 82% 33% 19% Core accounting Platform revenues' Non- WorkflowMax² recurring³ 1 Platform revenues include revenue derived from related services, including adjacent products (such as Hubdoc), add-ons with incremental revenue (such as payroll and expenses modules), payments and revenue share agreements with partners 2 Revenues relating to WorkflowMax, online workflow and job management software 3 Non-recurring includes revenue from events (such as Xerocons and roadshows), and other non-subscription or platform services 11#12Investing in great products, leveraging the ecosystem Hubdoc A XERO PRODUCT Code-free accounting Hubdoc bundled into all Business Edition plans globally Single sign-on with access from inside Xero • Smarter, faster data capture from bills, receipts and other sources • Less manual data entry . and coding reduces errors, saves time • Simpler bank reconciliation process xero TAX Integrated tax prep and filing Xero Tax launched at no extra cost through Partner Program in UK • Features include single sign-on, multi-user review, e-signing, auto tax adjustments • Completed Corporation Tax and Accounts Production for micro entities, and small companies abridged accounts Preparing for MTD for Income Tax (personal tax, trusts, partnerships and estates) Better business and cash flow insights Business Snapshot and Short-term cash flow pilots being extended to all Business Edition customers • Business Snapshot provides a simplified, quick-access financial metrics dashboard Short-term cash flow projects a 30-day bank balance to help with cash flow management decisions IDC ANALYZE THE FUTURE Industry recognition Xero recognised as a leader in the IDC MarketScape: Worldwide SaaS and Cloud-Enabled Small Business Finance and Accounting Applications 2020 Vendor Assessment¹ Read more at xero.com/about/ investors/idc-report 1doc #US45837020, April 2020 12#13Payments and access to capital stripe GOCARDLESS □ Square nab TransferWise Receiving payments • Get paid by customers faster, and with more ways to pay • Streamlining automatic. payments and facilitating settlement of invoices on the spot or through direct debit • Enhanced functionality like Stripe feed and daily sales summaries in Square • Point-of-sale integration for richer transactional data with Square in Australia • Extension of GoCardless partnership to North America Paying bills • Bank agnostic solution in the UK through TransferWise ● Automating bill payment processes, simplifying repetitive manual tasks Reducing chances of human error • Seamless and more secure processes, eg direct connection to NAB avoids handling of ABA files Transaction-based, tiered pricing plans Access to capital • Better ways to access capital through ecosystem partners • Options for invoice financing, lines of credit and cash advances, medium to long- term financing • Working with wide range of established providers and new model fintech offerings 13#14Financial results Kirsty Godfrey-Billy CHIEF FINANCIAL OFFICER O D Bichule | South Africa 14#15Managing COVID-19 financial risks Group cost structure General and administration Cost of revenue 12% 14% 31% Product design and development (gross) 43% Sales and marketing Scenario planning Rigorous stress testing of revenue, spending and investment outlook under a range of scenarios by market, considering: • Gross subscriber additions: Impact of macro conditions and lead indicators external to Xero, eg web traffic, trials, business closures and new business creation rate • Subscription cancellations and churn: Customer sentiment and small business performance indicators •⚫ Other revenue contributors: Eg Xerocon and other events Focus on costs and capital allocation Identification of fixed and variable cost base elements: • People: Selective approach to staff-related costs including hiring, compensation and travel • Workplace: Support for extended office closures and work-from- home arrangements • Procurement: Reassessment of vendor agreements • Capital allocation: Capital allocation and resource planning necessary to support and reprioritise strategic investment planning 15#16Strong top-line trends maintained with further free cash flow improvement Annualised monthly recurring revenue Free cash flow $27.1m $1,000m $30m +29% YOY $20m $750m $500m $250m $10m $0m $-10m $-20m $0m $-30m FY18 FY19 FY20 FY18 FY19 FY20 16#17Total available liquid resources of $686 million Movement in net cash position FY19 ($000s) FY20 ($000s) YOY change ($000s) Cash and cash equivalents 121,527 108,027 (13,500) Positive free cash flow result in FY20 of $27.1m, equivalent to 3.8% of operating revenues Operating cash flow increased 46% to $166.6m for FY20, an improvement of $52.4m from $114.2m in FY19 Net cash position at 31 March 2020 was $111.5m (comprising cash and short-term deposits less term debt) compared to $100.6m at 31 March 2019 Total available liquid resources, inclusive of $150m of undrawn committed debt facilities, of $686m Short-term deposits 336,819 428,052 91,233 Total cash and short-term deposits 458,346 536,079 77,733 - (357,731) (424,587) (66,856) Convertible notes term debt liability Net cash 100,615 111,492 10,877 17#1827% uplift in lifetime value Total subscriber lifetime value (LTV) Progress from March 2020 March 2019 ARPU Churn % Gross margin $29.93 1.13% 85% LTV per subscriber $2,422 1%¹ >$1.1b added in 12 months $4.4b $5.5b 1 LTV per subscriber growth in nominal terms. 0.6% decrease in constant currency terms based on exchange rates at 31 March 2019 18 Mar 19 Mar 20#19Unit economics and track record of value creation Compelling SaaS unit economics: CAC months MRR churn LTV/CAC LTV 14.0 1.13% 5.8 $2,422 CAC $420 $2,500 $2,000 $1,500 $1,000 $500 [ $0 $-500 Value of a Xero subscriber at 31 March 2020 LTV/CAC 5.8 - LTV $2,422 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Total lifetime value 5.5b Strong track record of value creation: - >$1.1 billion LTV added in 12 months $6b International ANZ $4b 4.4b 3.2b - LTV grew 1.7x in last 2 years 2.2b $2b 1.5b - FY16 to FY20 CAGR for LTV was 34% for ANZ and 52% for International $0b FY16 FY17 FY18 FY19 FY20 19#20Contribution margins positive in both segments Australia and New Zealand contribution improved 24% YOY, exceeding revenue growth of 22% YOY due to continued operating discipline and scale benefits International full year contribution positive for the first time in FY20 as scaling and CAC efficiencies offset continued investment to drive subscriber additions $300m $200m $100m Australia and New Zealand contribution $272m FY18 FY19 FY20 $0m $40m $20m $0m International segment contribution $27m $-20m FY18 FY19 FY20 20#21Financial performance Operating revenue growth of 30% YOY (29% constant currency), driven primarily by subscriber growth across all markets combined with modestly positive ARPU trends EBITDA improved $64.6 million YOY, resulting in a 6.Opp increase in EBITDA margin over the period as the business continues to benefit from scale and efficiency improvements EBITDA excluding impairments increased by 52% YOY while EBITDA margin, excluding impairments, increased by 2.8pp Achieved first time full year net profit of $3.3 million Product design & development General & administration FY19 FY20 YOY change ($000s) ($000s) (%) Total operating revenue 552,819 718,231 30% Gross profit 461,904 611,649 32% Gross margin 83.6% 85.2% +1.6pp Sales & marketing costs 248,014 312,852 26% 137,795 178,258 29% 66,072 88,980 35% EBITDA 73,171 137,743 88% EBITDA excl. impairments 91,775 139,170 52% EBITDA margin 13.2% 19.2% +6.Opp EBITDA margin excl. impairments 16.6% 19.4% +2.8pp Net profit/(loss) after tax (27,143) 3,336 NM Net profit/(loss) after tax excl. impairments (8,539) 4,763 NM 21#2290% 85% 80% Progress on scale and operating efficiency Gross margin 50% 85.2% CAC as % of revenue Product costs including opex and capex as % of revenue¹ 50% 45% +1.6pp 43.6% 35% 31.4% -1.3pp +0.5pp 75% 40% 20% FY18 FY19 FY20 FY18 FY19 FY20 FY18 FY19 FY20 Both Australia and New Zealand and International segments saw positive gross margin trends Gross margin improvement powered by efficiencies in cloud hosting and other platform-related benefits which are driving further improvements to customer service quality at a lower cost Sales and marketing costs increased by 26% YOY which was lower than growth in operating revenue in FY20. This resulted in a 1.3pp improvement YOY in CAC as percentage of revenue Product investment level stabilised and will continue to support longer-term strategic priorities and related technological needs. Hubdoc and Instafile were acquired and successfully embedded into the product portfolio over FY19 and FY20 1 Net of government grants 22#23Strategy update Steve Vamos CHIEF EXECUTIVE OFFICER Momentum Accounting | United States 23#24Strategic trends Adoption of cloud technologies Digitisation of tax and compliance O Innovation in financial services T Post COVID-19 small business economy 24#25Strategy on a page WHY WE EXIST Purpose Make life better for people in small business, their advisors and communities around the world Vision To be the most insightful and trusted small business platform VALUES #Human O #Challenge #Team #Ownership #Beautiful STRATEGIC PRIORITIES Drive cloud accounting Grow small business platform Build for global scale and innovation OUTCOMES Our Customers Customers and partners are more successful and confident on Xero Our People Our people are doing the best work of their lives Xero Long-term value creation by becoming the small business platform of choice 25#26Areas of planned strategic investment STRATEGIC PRIORITIES Drive cloud accounting Grow small business platform AREAS OF PLANNED INVESTMENT Best-in-class cloud accounting for small business Extend access and distribution to serve all small businesses Serve small businesses with multi-lingual editions 畳 Small business needs beyond accounting and compliance. Payments and access to capital New applications leveraging data, Al and machine learning +3 D Build for global scale and innovation Attract, inspire and retain world class talent Robust technology to drive innovation at speed Optimised operational and financial structure IMPACT • Increased adoption of cloud accounting within Xero's existing markets • Extension into new segments and geographies • Increased platform revenue contribution • Increased attach and usage of ecosystem apps and financial services products • Improved scale and efficiency indicators • Revenue from new product launches • Disciplined capital allocation 26#27Social and environmental impact XERO ASSISTANCE PROGRAMME Beyond Blue 2020 Business Support and Communities Launch of Xero Assistance Programme in New Zealand and partnership with Beyond Blue in Australia II Bloomberg Gender-Equality Index Diversity & Inclusion Included in 2020 Bloomberg Gender-Equality Index BUSINESS ENVIRONMENT & DIVERSITY INCLUSION OUR PEOPLE SUPPORT COMMUNI to NET ZERO @ XERO Environment Completed retrospective 100% carbon offset for FY19 footprint through three internationally recognised environmental and conservation projects MSCI ISS ESG ESG RATINGS A CCC B BB BBB A AA AAA FTSE4Good 27#28Outlook While Xero has performed strongly in FY20, trading in the early stages of FY21 has been impacted by the COVID-19 environment. The continued uncertainty surrounding COVID-19 means it would be speculative for us to say anything more at this time on its potential impact on our expected performance for FY21. Xero's ambition is to be a long-term oriented, high-growth business. We continue to operate with disciplined cost management and targeted allocation of capital. This allows us to remain agile so we can continue to innovate, invest, support our customers, and respond to opportunities and changes in our operating environment. 28#29Q&A Sidone | United Kingdom 29#30Appendix Streamline Management | Australia 30#31SaaS metrics summary FY19 ANZ • 000 000 0000000000 00000 000 000000 000000 . 00000 000 0000000 000000 0000 International Group FY20 FY19 FY20 FY19 FY20 ARPU $30.66 $29.83 $27.21 $30.05 $29.25 $29.93 CAC months 9.4 9.7 18.3 18.1 13.6 14.0 MRR churn 0.85% 0.84% 1.55% 1.59% 1.10% 1.13% Subscribers 1,077,000 1,306,000 741,000 979,000 1,818,000 2,285,000 LTV per sub $3,075 $3,058 $1,413 $1,573 $2,398 $2,422 LTV/CAC 10.7 10.6 2.8 2.9 6.0 5.8 Total LTV $3.31b $3.99b $1.05b $1.54b $4.36b $5.53b 31#32COVID-19: How we're helping xero XERO CENTRAL Support Learning Search support Case study - Xero Central Business continuity hub Customised with relevant content for user region Access to live webinars, guides and other resources on topics like latest government initiatives, managing cash flow, business continuity planning, running a business remotely and wellbeing Contact details for our dedicated, 24/7 customer response team for case-by-case assistance Read more at central.xero.com/s/business-continuity Business continuity hub Xero is committed to standing behind small business during this challenging time. We've created this page to help support you, your people and your business through the uncertainty of the global COVID-19 outbreak. We've also set up a community space for our customers to share their experiences. We'll continue to add useful resources and information to this page as they become available. Get help for your business Access government information and assistance available to support your business through the COVID-19 pandemic Business continuity planning Techniques and tools to help your business get through unforeseen disruptions Look after yourself and your team Techniques to care for your and your people's physical and mental wellbeing during challenging times Keep track of your cash flow Use Xero to keep track of your business's key numbers Run your business remotely Tools and skills to enable you and your employees to continue to work effectively online 32 Q#33COVID-19: How we're helping Case study - Australia JobKeeper & Xero Payroll Employee eligibility calculator based on eligibility criteria and employee data within Xero Payroll Enrolment of employees directly with the ATO and pay runs incorporating JobKeeper payment top-up as a pay item within the allowances category, and ability to file directly with ATO through STP Ongoing GST reporting and declaration of continued eligibility Read more at central.xero.com/s/article/Account-for-COVID-19-government- support-in-Xero-AU Xero Beautiful business Free trial Login Q Search xero.com Features & tools Why Xero Pricing Find an advisor Resources ✓ Partners v Accounting software helping get you STP and JobKeeper ready Automate everyday business tasks, get up-to-date financials and file payruns with the ATO in a matter of clicks so you can run your business - from wherever you are. Single Touch Payroll with Xero now makes it easier to process JobKeeper. Try Xero for free Buy now Pend Pay Pay your employees Pay P Pay Pa PAYSLIP xero To our Xero family Continuing business at times like these is tougher than ever. So we've pulled together the latest news, tools and resources to help with processing JobKeeper, business continuity and managing wellbeing. COVID-19 UPDATE ① JobKeeper law has now been passed Understand what the government's Job Keeper payments mean for your business and why now is the time to start reporting your payroll information to the ATO through Single Touch Payroll in Xero. Learn more Learn more Build your business on Xero Xero's small business accounting software has all the time- saving tools you need to grow your business. From importing bank transactions to sending invoice reminders, Xero automatically handles tasks so you can get your accounting done faster. Save time and discover how Xero can help you build your small business through our ecosystem of features and apps. Payroll? Check. Need to track jobs through Xero Projects? Absolutely. Check more off your list with Xero. 33#34Glossary Subscribers Subscriber means each unique subscription to a Xero- offered product that is purchased by an accounting partner or an end user (small business subscriber) which is (or is available to be) deployed. Subscribers that have multiple subscriptions to integrated products on the Xero platform are counted as a single subscriber AMRR Annualised monthly recurring revenue (AMRR) represents monthly recurring revenue at 31 March, multiplied by 12. It provides a 12 month forward view of revenue, assuming any promotions have ended and other factors such as subscriber numbers, transaction volumes, pricing and foreign exchange remain unchanged during the year ARPU Average revenue per user (ARPU) is calculated as AMRR at 31 March divided by subscribers at that time (and divided by 12 to get a monthly view) Churn Churn is the value of monthly recurring revenue (MRR) from subscribers who leave Xero in a month as a percentage of the total MRR at the start of that month. The percentage provided is the average of the monthly churn for the previous 12 months Constant currency Constant currency comparisons for revenue are based on average exchange rates for the 12 months ended 31 March 2019. Comparisons for ARPU, AMRR and LTV are based on exchange rates at 31 March 2019 Lifetime value (LTV) LTV is the gross margin expected from a subscriber over the lifetime of that subscriber. This is calculated by taking the average subscriber lifetime (1 divided by churn) multiplied by ARPU, multiplied by the gross margin percentage. Group LTV is calculated as the sum of the individual segment LTVs, multiplied by their respective segment subscribers, divided by total Group subscribers CAC months Customer Acquisition Cost (CAC) months are months of ARPU to recover the cost of acquiring each new subscriber. The calculation is sales and marketing costs. for the year excluding the capitalisation and amortisation of commissions paid to sales people, less conference revenue (such as Xerocon), divided by gross new subscribers added during the same period, divided by ARPU Liquid resources Liquid resources comprises cash and cash equivalents, short-term deposits including proceeds from convertible notes, and undrawn committed debt facilities Free cash flow Free cash flow is defined as cash flows from operating activities less cash flows used for investing activities excluding cash used for acquisitions of, and investments into, businesses and strategic assets Finweb Financial web SBP Share-based payments TAM Total addressable market GAAP Generally accepted accounting principles 34#35Contact Toby Langley INVESTOR RELATIONS [email protected] +61 450 223 995 Kate McLaughlin COMMUNICATIONS [email protected] +64 27 533 4529 Wilson Farm | New Zealand 35#36xero Beautiful business xero.com/investors