XERO LIMITED — Annual Report 2021

May 12, 2021

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Investor briefing Full year results to 31 March 2021

13 MAY 2021

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Important 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 2021, 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 2021, 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 28 for a glossary of the key terms used in this presentation.

Authorised for release to the ASX by the Chair of the Board and the Chair of the Audit and Risk Management Committee.

2

Agenda

Business Financial update results Steve Vamos Kirsty Godfrey-Billy CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER

Outlook

Q&A

01 02 03 04

3

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4
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Business update Steve Vamos

CHIEF EXECUTIVE OFFICER

• Growing momentum through a challenging year

Financial and operating performance highlights for the full year ending 31 March 2021

SUBSCRIBERS 2.741m + 456,000 YOY

2.741m

OPERATING REVENUE $ 848.8m + 18% YOY (18% in constant currency)

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ARPU AMRR
$ $
29.30 963.6m
-2% YOY (-1% in + 17% YOY (18% in
constant currency) constant currency)
EBITDA NET PROFIT
$ $
191.2m 19.8m
+ $53.5m YOY + $16.4m YOY
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TOTAL LIFETIME VALUE
$
7.6b
+ $2.1b YOY
FREE CASH FLOW
$
56.9m
+ $29.8m YOY
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5

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Lower churn and increasing customer activity

Reduction in churn reflects a number of factors including the value of Xero to our customers in a difficult environment. Customer activity, illustrated below by employees paid and total invoice payments, shows recovery and continued momentum throughout the year

Total employees paid through Xero[2]

Total payment value[3]

MRR churn[1]

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160
140
120
100
100
80
60
40
20
0
JAN-20MAR-20MAY-20JUL-20 SEP-20NOV-20 JAN-21 MAR-21
Indexed to Mar 20
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160
140
120
100
100
80
60
40
20
0
JAN-20MAR-20MAY-20 JUL-20 SEP-20 NOV-20 JAN-21 MAR-21
Indexed to Mar 20
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FY20 FY21 Δ YOY ANZ 0.84% 0.73% -0.11pp International 1.59% 1.43% -0.16pp Group 1.13% 1.01% -0.12pp

1 See glossary on page 28 for definition of churn

• 2 Monthly total employees paid through Xero Payroll in Australia, New Zealand and the UK (markets with a Xero Payroll solution) 3 Total monthly invoice payment value across our connected online payment service providers who process the payment of invoices on the Xero platform

6

Drive cloud accounting

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ANZ International
Australia New Zealand United Kingdom North America Rest of World
FY21 Δ YOY FY21 Δ YOY FY21 Δ YOY FY21 Δ YOY FY21 Δ YOY
Subscribers 1.12m +22% 446k +14% 720k +17% 285k +18% 175k +40%
Net additions 201k +7% 54k +32% 107k -29% 44k -4% 50k +19%
Revenue $384m +20% $130m +12% $224m +22% $57m +2% $54m +27%
1.56M SUBSCRIBERS (+20% YOY) | 255k NET ADDS 1.18M SUBSCRIBERS (+21% YOY) | 201K NET ADDS
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CLOUD ACCOUNTING SUBSCRIBER TAM 45M+ | ADOPTION 20% [1]
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1 Estimated TAM and adoption rate across English speaking addressable cloud accounting markets, based on publicly available data

7

Australia and New Zealand highlights

Australia

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• Record subscriber net additions in FY21

• Increased partner channel cloud adoption

• Launched Online Business Lending app integration with ANZ Bank

• Price change effective 1 March 2021

FY21 Δ YOY Subscribers 1.12m +22% Net additions 201k +7% Revenue $384m +20%[1]

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• Strongest subscriber net additions in three years

• Partner cloud adoption remained elevated throughout FY21

• Reflecting a more normal operating environment, resumed in-person events eg Xero Awards FY21 Δ YOY Subscribers 446k +14% Net additions 54k +32% Revenue $130m +12%

1 Revenue growth 18% YOY constant currency

8

International highlights

United Kingdom

• Second best net additions ever in a half year period in H2 FY21

• Investment in readiness for next phases of MTD for VAT and Income Tax

• Continued execution of compliance product strategy including partner testing for Personal Tax

	FY21	Δ YOY
Subscribers	720k	+17%
Net additions	107k	-29%
Revenue	$224m	+22%1

• 1 Revenue growth 23% YOY constant currency

North America

	North America • Record subscriber net additions2in a half ye period in H2 FY21 • Continued growth in partner channel capaci in the year with partner channel activation • Price change in US efective 14 December 20 • Introduced CAD billing in Canada Subscribers 285k +18% Net additions 44k -4% Revenue $57m +2%4 FY21 Δ YOY

• Record subscriber net additions[2] in a half year period in H2 FY21

• Continued growth in partner channel capacity[3] in the year with partner channel activation

• Price change in US effective 14 December 2020

• 2 Excluding acquisitions

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Rest of World

	Rest of World • Bank feed coverage live across major banks in Singapore • Acquired e-invoicing app Invoici in Singapor • Bank feed agreements signed with Nedbank and Investec in South Africa • Announced VAT e-fling trial in South Africa Subscribers 175k +40% Net additions 50k +19% Revenue $54m +27%5 FY21 Δ YOY

  - Acquired e-invoicing app Invoici in Singapore

• 5 Revenue growth 32% YOY constant currency

• 3 Estimated 1.5 million+ small businesses

• 4 Revenue growth 6% YOY constant currency

9

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Grow the small business platform

FY21 revenue growth YOY

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FY21 revenue
composition
Group
operating revenue
$848.8m
Core accounting [1]
91%
Platform [2]
Other [3]
7%
2%
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21%
20%
Core
Platform [2]
accounting [1]
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• Other revenues[3] decreased 28% primarily due

• to cancellation of Xerocons and other in-person events such as roadshows

• Group operating revenue grew 18%

1 Bundled Hubdoc is included in core accounting revenue

• 2 Platform revenues include revenue derived from related services, including adjacent products (such as Hubdoc subscriptions on other accounting platforms) and add-ons with incremental

• revenue (such as payroll, projects and expenses modules), payments and revenue share agreements with partners

• 3 Other comprises non-recurring revenues and WorkflowMax. Non-recurring includes revenue from events (such as Xerocons and roadshows), and other non-subscription or platform services. WorkflowMax is online workflow and job management software. Non-recurring revenues decreased 80% YOY and WorkflowMax related revenues increased by 3% YOY

10

Build for global scale and innovation

Talent acquisition continued throughout the period in line with strategic objectives

• More than 550 new employees[1]

• Enhanced capabilities in product, technology, data, strategy, financial services, corporate development, risk

• Named one of the ‘Best Places to Work in Australia and New Zealand' in 2021 by AFR BOSS Magazine in the technology category

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Optimisation of operational and financial structure to meet strategic needs of the business

• Issued US$700m in convertible notes and repaid existing notes, with net funds raised US$408m

• Funds raised supported three acquisitions over the year (Waddle, Planday, Tickstar)

• Enhanced platform security infrastructure and foundations for greater automation and an improved operating model for security

• Customer and go-to-market teams more globally aligned

Building stakeholder trust by embedding social and environmental impact activities across the business to support sustainable long-term growth

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11

1 Net new full-time equivalent employees

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12
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Financial results Kirsty Godfrey-Billy CHIEF FINANCIAL OFFICER

• Responsive spending and investment plan to support growth under changing conditions

AMRR

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$
963.6m
A$1,000m
+17%
A$750m
$820.6m
A$500m $638.2m
A$250m
A$0m
FY19 FY20 FY21
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EBITDA

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$
191.2m
A$200m
+39%
A$150m
$137.7m
A$100m
A$50m
$73.2m
A$0m
FY19 FY20 FY21
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Free cash flow

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$
56.9m
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A$60m
+29.8m
A$40m
A$20m
$27.1m
$6.5m
A$0m
FY19 FY20 FY21
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Growth in AMRR of $143m or 17% YOY (18% in constant currency) was driven by subscriber growth of 20%, offset by a decrease in ARPU of 2% YOY (-1% YOY in constant currency)

EBITDA increased by $53.5m or 39% YOY, reflecting strong revenue growth and a decision to reduce sales and marketing spend during the H1 FY21, against a backdrop of COVID-19 uncertainty

Free cash flow increased by $29.8m to $56.9m. Free cash flow as a percentage of revenue increased 2.9pp from 3.8% to 6.7% YOY. H1 free cash flow benefitted from responsive expense management while higher investment levels returned in H2 to support growth

13

Unit economics and track record of value creation

March 2021 Δ YOY ARPU $29.3 MRR churn 1.01% Gross margin 86.0% LTV per subscriber A$2,789 15%[1] LTV/CAC 6.4 CAC months 14.8

LTV CAGR FY16 to FY21 was 36% for ANZ and 46% for International

Value of a Xero subscriber

AT 31 MARCH 2021

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$2,500
$2,000 LTV/CAC
$1,500 6.4
LTV
$1,000
$2,789
$500
CAC $0
$433
$-500
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Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8

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$
2.1b
added
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Total lifetime value

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7.6b
$8b International
ANZ
$6b 5.5b
4.4b
$4b
3.2b
2.2b
$2b
$0b
FY17 FY18 FY19 FY20 FY21
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1 LTV per subscriber growth in nominal terms. 14% increase in constant currency terms based on exchange rates at 31 March 2020

14

• Steady gross margin, dynamic CAC settings and continued growth in product investment

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Gross margin CAC as % of revenue
100% 50% 44.9%
43.6%
36.3%
86.0%
90% 85.2% 40%
83.6%
80% +0.8pp 30% -7.3pp
70% 20%
FY19 FY20 FY21 FY19 FY20 FY21
c
Gross margin improvement driven by ontinuing Sales and marketing costs decreased 2%
efficiencies in cost to serve including customer year on year. As a proportion of revenue,
support, and cloud hosting services sales and marketing costs decreased 7pp
to 36%. This reflected a deliberate reduction
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Sales and marketing costs decreased 2% year on year. As a proportion of revenue, sales and marketing costs decreased 7pp to 36%. This reflected a deliberate reduction in H1 spend that returned to higher levels to support higher growth in H2

Product costs including opex and capex, as % of revenue[1]

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50%
36.7%
40%
31.4%
30.9%
30% +5.3pp
20%
FY19 FY20 FY21
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Product investment increased in FY21 by 38% YOY to support longer-term strategic priorities and related technological and customer needs

15

1 Gross product costs before deducting government grants

Financial performance

Operating revenue growth of 18% YOY (18% constant currency), driven primarily by subscriber growth across all markets

EBITDA improved $53.5m YOY, resulting in a 3.3pp increase in EBITDA margin over the period due to revenue growth and responsive expense management Full year net profit of $19.8m was impacted by two oneoffs that had a net negative impact of $7.8m, comprising

• Recognition of a deferred tax asset: +$65.0m

• Losses and transaction costs related to convertible notes[1] :

-$72.8m

1 Losses and transaction costs related to Xero’s concurrent issuance of 2025 convertible notes and buy back of 2023 convertible notes

	FY20 ($000s) FY21 ($000s) Δ YOY (%)
Total operating revenue Gross proft	718,231 848,782 18%
	611,649 729,889 19%
Gross margin	85.2% 86.0% +0.8pp
Sales & marketing costs	(312,852) (307,948) -2%
Product design & development	(178,258) (249,532) 40%
General & administration Total operating expenses Asset impairments and other income & expenses Operating proft EBITDA EBITDA margin Net proft	(88,980) (106,345) 20%
	(580,090) (663,825) 14%
	(1,123) (4,377) NM
	32,682 61,687 89%
	137,743 191,228 39%
	19.2% 22.5% +3.3pp
	3,336 19,774 NM

16

Total liquid resources of $1.3 billion

Net cash position more than doubled to $256.6m at 31 March 2021

Total available liquid resources at 31 March 2021 of $1.3b, inclusive of $150m of undrawn committed debt facilities

Net US$408m ($577m) additional capital raised in November through new US$700m zero-coupon convertible notes issue, offset by early repayment of existing 2023 convertible notes

Initial payments of $150m on completion of Planday and Tickstar acquisitions occurred post balance date, on 1 April 2021

Movement in net cash position

	FY20 ($000s) FY21 ($000s) Δ YOY ($000s)
Cash and cash equivalents Short-term deposits Total cash and short-term deposits Convertible notes – term debt liability Net cash	108,027 657,849 549,822 428,052 452,814 24,762
	536,079 1,110,663 574,584
	(424,587) (854,078) (429,491)
	111,492 256,585 145,093

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17

Strategy update Steve Vamos CHIEF EXECUTIVE OFFICER

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Strategic priorities

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Drive cloud accounting

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Grow small Build business for global platform scale and innovation Ok

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Ok
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19

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Progress on acquisitions in FY21
Invoice lending platform leveraging Workforce management platform E-invoicing technology providing connections
ACQUISITION
customers’ accounting data for employers and employees to the Peppol global e-invoicing network
Completed 1 October 2020 Completed 1 April 2021 Completed 1 April 2021
CONSIDERATION [1] A$80 million ($87m) €183.5 million ($305m) SEK150 million ($25m)
Grow small business platform Drive cloud accounting
STRATEGIC
PRIORITIES
Build for global scale and innovation
ALIGNMENT
Makes worker scheduling, payroll Provides access to well-established
WITH
Provides access to capital
compliance and communicating e-invoicing capability and network
CUSTOMER
through invoice financing
with employees easier for faster, more secure transactions
NEEDS
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1 Total consideration subject to performance and/or product development milestones

• Planday a key step into workforce management

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CUSTOMER NEEDS

Makes running businesses easier

Employee scheduling, time tracking and attendance, payroll compliance, reporting Integrated employee communications

Global TAM 100m+ users[1]

Managers can contact employees quickly and securely through the shift worker app

CURRENT MARKETS

Denmark, Norway, Sweden, UK, Germany, France, US

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SUPPORTED LANGUAGES
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English, Danish, Norwegian, Extra mobile app languages: Swedish, German, French, Polish, Portuguese, Greek, Spanish, Italian Czech, Dutch, Finnish

PLAN PRICING[2] (PER EMPLOYEE USER, PER MONTH) Starter Plus Pro €2.49 €4.49 €6.49

1 Estimated time, attendance & scheduling TAM across Planday and Xero’s current markets, based on publicly available data and expressed in terms of total employee users 2 Illustrative plan pricing, see planday.com/pricing for further details

21

Outlook

Xero will continue to focus on growing its global small business platform and maintain a preference for reinvesting cash generated, subject to investment criteria and market conditions, to drive long-term shareholder value.

Total operating expenses (excluding acquisition integration costs) as a percentage of operating revenue for FY22 are expected to be in a range of 80-85% which is consistent with levels seen in the second half of FY21 and the pre-pandemic period. Integration costs, relating to the three acquisitions announced during FY21, are expected to increase total operating expenses as a percentage of operating revenue by up to 2% for FY22. As previously stated, the acquisition of Planday is expected to contribute approximately three percentage points of additional operating revenue growth in FY22.

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22

Q&A

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Steve Vamos CHIEF EXECUTIVE OFFICER Kirsty Godfrey-Billy CHIEF FINANCIAL OFFICER

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24
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Appendix

Subscriber growth trend

Closing subscribers from H1 FY19 to H2 FY21

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+20% YOY
+19% YOY 2.74m
Australia
+26% YOY
2.45m
New Zealand
+30% YOY
2.29m 175k
United Kingdom +31% YOY 2.06m
136k
285k
+32% YOY
125k
North America 1.82m
251k
720k
1.58m 99k
Rest of World 241k
638k
83k
215k
613k
65k 195k 536k
446k
463k
178k
414k
355k
392k
367k
1,115k
351k
1,014k
324k
914k
840k
726k
657k
H1 FY19 H2 FY19 H1 FY20 H2 FY20 H1 FY21 H2 FY21
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25

	H1 FY19 ($000s) H2 FY19 ($000s) H1 FY20 ($000s) H2 FY20 ($000s) H1 FY21 ($000s) H2 FY21 ($000s)
Total operating revenue Gross proft Gross margin Sales & marketing costs Percentage of operating revenue Product design & development Percentage of operating revenue General & administration Percentage of operating revenue Total operating expenses Percentage of operating revenue Asset impairments and other income & expenses Operating proft/(loss) EBITDA EBITDA margin Net proft/(loss) ce	256,527 296,292 338,658 379,573 409,837 438,945
	212,277 249,627 288,517 323,132 351,161 378,728
	82.8% 84.3% 85.2% 85.1% 85.7% 86.3%
	(115,747) (132,267) (146,072) (166,780) (130,750) (177,198)
	45.1% 44.6% 43.1% 43.9% 31.9% 40.4% (68,866) (68,929) (85,297) (92,961) (110,654) (138,878) 26.8% 23.3% 25.2% 24.5% 27.0% 31.6% (31,093) (34,979) (41,138) (47,842) (46,917) (59,428) 12.1% 11.8% 12.1% 12.6% 11.4% 13.5%
	(215,706) (236,175) (272,507) (307,583) (288,321) (375,504)
	84.1% 79.7% 80.5% 81.0% 70.4% 85.5% (18,994) 294 (1,270) 2,393 (3,151) (1,226)
	(22,423) 13,746 14,740 17,942 59,689 1,998
	16,759 56,412 64,850 72,893 120,765 70,463
	6.5% 19.0% 19.1% 19.2% 29.5% 16.1%
	(28,565) 1,422 1,336 2,000 34,486 (14,712)

Financial performance

Overview of financial performance from H1 FY19 to H2 FY21

26

SaaS metrics summary

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ANZ International Group
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	H1 FY20 FY20 H1 FY21 FY21 H1 FY20 FY20 H1 FY21 FY21 H1 FY20 FY20 H1 FY21 FY21
ARPU	$31.64 $29.83 $30.79 $31.23 $29.98 $30.05 $28.44 $26.74 $30.96 $29.93 $29.81 $29.3
CAC months MRR churn Subscribers Net additions (6 months) LTV per sub LTV/CAC Total LTV	8.6 9.7 9.1 8.9 16.0 18.1 22.0 22.4 12.3 14.0 14.9 14.8
	0.82% 0.84% 0.83% 0.73% 1.58% 1.59% 1.53% 1.43% 1.10% 1.13% 1.11% 1.01%
	1,207,000 1,306,000 1,428,000 1,561,000 850,000 979,000 1,025,000 1,180,000 2,057,000 2,285,000 2,453,000 2,741,000
	130,000 99,000 122,000 133,000 109,000 129,000 46,000 155,000 239,000 228,000 168,000 288,000
	$3,362 $3,058 $3,182 $3,682 $1,563 $1,573 $1,587 $1,608 $2,619 $2,422 $2,516 $2,789
	12.3 10.6 11.4 13.2 3.3 2.9 2.5 2.7 6.9 5.8 5.7 6.4
	$4.06b $3.99b $4.54b $5.75b $1.33b $1.54b $1.63b $1.90b $5.39b $5.53b $6.17b $7.65b

27

Glossary

Subscribers

Subscriber means each unique subscription to a Xerooffered product that is purchased by a user (eg a small business or accounting partner) and 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 2020. Comparisons for ARPU, AMRR and LTV are based on exchange rates at 31 March 2020

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

GAAP

Generally accepted accounting principles

TAM

Total addressable market

CAGR

Compound annual growth rate

28

Contact

Toby Langley Kate McLaughlin INVESTOR RELATIONS COMMUNICATIONS toby.langley@xero.com kate.mclaughlin@xero.com +61 450 223 995 +64 27 533 4529

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Beautiful business xero.com/investors