XERO LIMITED — Interim / Quarterly Report 2021

Nov 11, 2020

Investor Briefing Half year results to 30 September 2020 12 NOVEMBER 2020

Mentorloop | Australia

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 interim report for the period ended 30 September 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 30 September 2020, unless otherwise stated.

All currency amounts are in NZ dollars, unless otherwise stated.

See page 25 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.

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Agenda Business Financial Outlook Q&A update results Steve Vamos Kirsty Godfrey-Billy CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER 01 02 03 04

Business update

Steve Vamos CHIEF EXECUTIVE OFFICER

Orenda Tribe + CV Ledger | United States

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Revenue	growth with operational	growth with operational	discipline
in challenging conditions
Financial and operating	performance highlights for the six months ending 30 September 2020
SUBSCRIBERS	ARPU	AMRR	TOTAL LIFETIME VALUE
2.453m	$29.81	$877.6m	$6.2b
+ 396,000 YOY	- 4% YOY(-3% in	+ 15% YOY(15% in	+ $0.8b YOY
	constant currency)	constant currency)
OPERATING REVENUE	EBITDA	NET PROFIT AFTER TAX	FREE CASH FLOW
$409.8m	$120.8m	$34.5m	$54.3m
+ 21% YOY(19% in	+ $55.9m YOY	+ $33.2m YOY	+ $49.4m YOY
constant currency)

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Supporting our customers and partners
Ok
Ok
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Prioritised product development and delivery

• [Enhanced Starter plan better ] tailored to customer needs

• [Streamlining practice management ] and workflows for partners

• [Improving Stripe and GoCardless ] payment integrations

Continuing to connect and share

• [Helping our people do their best ] work in supporting our customers and partners

• [Created Xero On Air to digitally ] engage with partners and customers

• [Providing a lens into the small ] business economy through Xero Small Business Insights (XSBI) research

Helping to navigate through COVID-19

• [Payroll enhancements in response to ] various government initiatives and stimulus benefits, eg furlough leave and Job Retention Scheme in the UK, and JobKeeper payments in Australia

• [Supporting customers and their ] business advisors in managing cash flow and business performance

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• Customer metrics show value of Xero to subscribers

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Monthly MRR churn [1] Weekly subscriber login
activity [2] since Jan 20 (indexed)
H1 FY20 H1 FY21 Δ YOY 140
120
ANZ 0.82% 0.83% 0.01% 100
80
International 1.58% 1.53% -0.05% 60
40
Group 1.10% 1.11% 0.01% 20
0
JAN FEB MAR APR MAY JUN JUL AUG SEP
Indexed to Mar 20
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Total monthly payment value[3] since Jan 20 (indexed)

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140
120
100
80
60
40
20
0
JAN FEB MAR APR MAY JUN JUL AUG SEP
Indexed to Mar 20
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• 2 Average weekly logins per subscriber from January to September 2020 3 Total monthly invoice payment value across our connected online payment service providers who process the payment of invoices on the Xero platform

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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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Drive cloud accounting

SUBSCRIBERS

NET ADDITIONS1

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REVENUE
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|Australia
1.01m
100k
$184m
+21%
-12%
+18%
New Zealand
414k
22k
$64m
+13%
+38%
+13%
H1 FY21
ΔYOY
H1 FY21
ΔYOY
1.43 MILLION SUBSCRIBERS | >50% CLOUD ADOPTION
2|United Kingdom
638k
25k
$107m
+19%
-66%
+33%
North America
251k
10k
$29m
+17%
-50%
+4%
Rest of World
136k
11k
$27m
+37%
-31%
+38%
H1 FY21
ΔYOY
H1 FY21
ΔYOY
H1 FY21
ΔYOY
1.03 MILLION SUBSCRIBERS | <20% CLOUD ADOPTION
2|
|---|---|

1 Net adds over six months, YOY% growth rate

2 Estimated adoption rates across English speaking addressable cloud accounting markets, based on publicly available data

Australia and New Zealand highlights

Australia

New Zealand

• [Became first Xero geography to pass through one million ] subscribers milestone

• [Worked closely with Australian Taxation Office to assist small ] business in accessing government stimulus, became JobKeeper enabled

• [Single Touch Payroll continued to contribute to subscriber growth ] with deadline of 1 July for businesses with 1-4 employees

• [Subscriber net additions reaccelerated for the first time against prior ] year since H2 FY17

• [Disruption from COVID-19 contributed to increased partner migration ] to the cloud

• [Launched lending integration with Kiwibank’s Fast Capital platform, ] a working capital and lending offer targeting SMEs in New Zealand

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H1 FY21 Δ YOY
SUBSCRIBERS
1.01m +21%
NET ADDITIONS
100k -12%
REVENUE
$184m +18% [1]
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H1 FY21 Δ YOY
SUBSCRIBERS
414k +13%
NET ADDITIONS
22k +38%
REVENUE
$64m +13%
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1 Revenue growth 17% YOY constant currency

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International highlights

United Kingdom

• [UK Government revised compliance dates for ] MTD for VAT (second phase) of April 2022, and MTD for Income Tax of April 2023

• [Continued to invest in preparation for MTD ] for Income Tax (personal tax, trusts, partnerships and estates)

• [Recognised as 2020 Accountancy Software of ] the Year at The Accountant & International Accounting Bulletin Awards

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H1 FY21 Δ YOY
SUBSCRIBERS
638k +19%
NET ADDITIONS
25k -66%
REVENUE
$107m +33% [1]
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• 1 Revenue growth 29% YOY constant currency

North America

• [Continued growth in estimated partner channel ]

• capacity to over 1.5 million small businesses, despite prolonged US tax filing season due to COVID-19

• [Bank feed agreement with Bank of America, ] completing coverage of top tier US banks

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H1 FY21 Δ YOY
SUBSCRIBERS
251k +17%
NET ADDITIONS
10k -50%
REVENUE
$29m +4% [2]
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2 Revenue growth 2% YOY constant currency

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Rest of World

• [Range of government initiatives helping to ] drive SME digitisation in Singapore including the Digital Resilience Bonus

• [Enhanced localised VAT filing experience ] in South Africa

• [Bank feeds announced with NedBank in ] South Africa

H1 FY21 Δ YOY SUBSCRIBERS 136k +37% NET ADDITIONS 11k -31% REVENUE $27m +38%[3]

• 3 Revenue growth 35% YOY constant currency

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Grow the small business platform

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H1 FY21
revenue
composition
Group
operating revenue
$409.8m
Core accounting [1] 91%
Platform revenues [2]
WorkflowMax [3]
[6%]
Non-recurring [4] 0.2% [2%]
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H1 FY21 revenue growth YOY

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24%
21%
21%
Group
operating
revenue
growth
6%
Core Platform
WorkflowMax [3]
revenues [2]
accounting [1]
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Non-recurring revenues decreased 87% primarily due to cancellation of Xerocon and other in-person events such as roadshows

1 Core accounting includes bundled Hubdoc revenues

• 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 and expenses modules), payments and revenue share agreements with partners

• 3 Revenues relating to WorkflowMax, online workflow and job management software

• 4 Non-recurring includes revenue from events (such as Xerocons and roadshows), and other non-subscription or platform services

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Build for global scale and innovation
Talent acquisition continued Optimisation of operational Embedding SEI activities across the business to
throughout the period in line and financial structure to meet deliver sustainable long-term growth
with strategic objectives strategic needs of the business
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Financial results

Kirsty Godfrey-Billy CHIEF FINANCIAL OFFICER

Link Pro | Hong Kong

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• Resilient business model, responsive spending and investment plan

AMRR

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$877.6m
$1,000m
$750m
+15%
$764.1m
$500m
$589.1m
$250m
$0m
H1 FY19 H1 FY20 H1 FY21
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Growth in AMRR of $113.5m or 14.8% YOY (15.1% in constant currency) was driven by subscriber growth across all markets, offset by movements in ARPU

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EBITDA
Free cash flow
$54.3m
$120.8m
$150m $60m
$40m
+49.4m
$100m
+86%
$20m
$64.9m
$50m
$0m $4.8m
$16.8m - [$] 9.8m
$0m -$20m
H1 FY19 H1 FY20 H1 FY21 H1 FY19 H1 FY20 H1 FY21
EBITDA increased by $55.9m or 86% YOY, as a Free cash flow increased $49.4m, also
result of a responsive spending and benefitting from responsive expense
investment plan in H1 FY21 combined with the management in H1 FY21
resilience of Xero’s business model
Free cash flow margin increased 11.8pp from
1.4% to 13.2% YOY
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Free cash flow
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Unit economics and track record of value creation

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September 2020 Δ YOY
ARPU $29.81
MRR churn 1.11%
Gross margin 86%
LTV per subscriber $2,516 -3.9% [1]
LTV/CAC 5.7
CAC months 14.9
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LTV grew 1.6x in the last 2 years

LTV CAGR H1 FY16 to H1 FY21 was 39% for ANZ and 48% for International

• 1 LTV per subscriber growth in nominal terms. 4.0% decrease in constant currency terms based on exchange rates at 30 September 2019

Value of a Xero subscriber

AT 30 SEPTEMBER 2020

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$2,500
$2,000 LTV/CAC
$1,500 5.7
LTV
$1,000
$2,516
$500
CAC $0
$445
$-500
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
$
Total lifetime value 0.8b
added
$8b International
ANZ
6.2b
$6b 5.4b
3.9b
$4b
2.8b
1.7b
$2b
$0b
H1 FY17 H1 FY18 H1 FY19 H1 FY20 H1 FY21
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• Steady gross margin, reduced CAC spend and continued product investment prioritisation

Gross margin

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100%
85.7%
90% 85.2%
82.8%
80%
+0.5pp
70%
H1 FY19 H1 FY20 H1 FY21
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Gross margin improvement driven by continuing efficiencies in cost to serve including customer support, and minor improvements in security and bank feed costs

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CAC as % of revenue Product costs including opex
and capex, as % of revenue
50% 50%
45.1%
43.1%
34.1%
40% 31.9% 40%
32.1%
31.3%
30% 30%
+2.0pp
-11.2pp
20% 20%
H1 FY19 H1 FY20 H1 FY21 H1 FY19 H1 FY20 H1 FY21
Sales and marketing costs decreased by 10% Product investment increased in H1 FY21 by
YOY, while operating revenue grew 21%. 29% YOY to support longer-term strategic
Management of the variable cost base priorities and related technological and
contributed to a 11.2pp decrease YOY in CAC customer needs
as a percentage of revenue
1 Net of government grants
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Product costs including opex and capex, as % of revenue[1]

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Contribution margins uplift across segments

Australia and New Zealand contribution improved 29% YOY, exceeding revenue growth of 17% YOY due to continued operating discipline and scale benefits combined with robust subscriber growth

International full year contribution improved $40m YOY, after becoming positive for the first time in H1 FY20. The impact of lower CAC spend combined with further scaling in the period more than offset the continued investment to drive long-term subscriber growth

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Australia and New Zealand
contribution
$
169m
$200m
$150m
$100m
$50m
$0m
H1 FY19 H1 FY20 H1 FY21
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International segment
contribution
$
$80m 51m
$60m
$40m
$20m
$0m
$-20m
H1 FY19 H1 FY20 H1 FY21
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Financial performance

Operating revenue growth of 21% YOY (19% constant currency), driven primarily by subscriber growth across all markets EBITDA improved $55.9m YOY, resulting in a 10.4pp increase in EBITDA margin over the period as a result of responsive expense management

There were no impairments recorded in the period Fourth consecutive half year period with positive net profit ($34.5m)

	H1 FY20 ($000s) H1 FY21 ($000s) YOY change (%) 338,658 409,837 21% 288,517 351,161 22% 85.2% 85.7% +0.5pp (146,072) (130,750) -10% (85,297) (110,654) 30% (41,138) (46,917) 14% (272,507) (288,321) 6% (1,270) (3,151) NM 14,740 59,689 NM 64,850 120,765 86% 19.1% 29.5% +10.4pp 1,336 34,486 NM
Total operating revenue Gross proft Gross margin Sales & marketing costs Product design & development General & administration Total operating expenses Asset impairments and other income & expenses Operating proft EBITDA EBITDA margin Net proft after tax

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Total available liquid resources of $723 million

Positive free cash flow result in H1 FY21 of $54.3m, equivalent to 13.2% of operating revenue

Operating cash flow increased 77% to $126.8m, an improvement of $55.2m from $71.5m in H1 FY20

Net cash position at 30 September 2020 was $177.7m (comprising cash and short-term deposits less term debt) compared to $101.4m at 30 September 2019

Total available liquid resources of $722.5m inclusive of $150m of undrawn committed debt facilities

Movement in net cash position

	H1 FY20 ($000s) H1 FY21 ($000s) YOY change ($000s) 110,898 222,016 111,118 385,130 350,516 (34,614) 496,028 572,532 76,504 (394,631) (394,873) (242) 101,397 177,659 76,262
Cash and cash equivalents Short-term deposits Total cash and short-term deposits Convertible notes – term debt liability Net cash

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Outlook

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Xero is a long-term oriented business with ambitions for high-growth. 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 in new products and customer growth, and respond to opportunities and changes in our operating environment. The continued uncertainty created by COVID-19 means it remains speculative to provide further commentary on our expected FY21 performance at this time.

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Q&A

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

Poplar Petfood | Australia

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Appendix

noissue | New Zealand

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SaaS metrics summary

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International

Group

ANZ

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H1 FY20 H1 FY21 H1 FY20 H1 FY21 H1 FY20 H1 FY21
ARPU $31.64 $30.79 $29.98 $28.44 $30.96 $29.81
CAC months 8.6 9.1 16.0 22.0 12.3 14.9
MRR churn 0.82% 0.83% 1.58% 1.53% 1.10% 1.11%
Subscribers 1,207,000 1,428,000 850,000 1,025,000 2,057,000 2,453,000
LTV per sub $3,362 $3,182 $1,563 $1,587 $2,619 $2,516
LTV/CAC 12.3 11.4 3.3 2.5 6.9 5.7
Total LTV $4.06b $4.54b $1.33b $1.63b $5.39b $6.17b
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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 30 September, 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 30 September 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 6 months ended 30 September 2019. Comparisons for ARPU, AMRR and LTV are based on exchange rates at 30 September 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 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

CAGR

Compound annual growth rate

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

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Beautiful business xero.com/investors