Xero Limited

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 Singh Cassidy, CEO of Xero, and I'm joined by our CFO, Claire Bramley. In FY '26, Xero delivered strong revenue growth of 31% added more than 500,000 new customers and generated $757 million in adjusted EBITDA.

We did this while closing and integrating Melio, 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 Bill Pay 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%.

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 churn 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 churn 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 CAC 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 demonstrates.

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 G&A base, reflecting its relative maturity and the inclusion of certain payments operation costs.

As Melio grows, 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 Melio 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 group 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 '20 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 x 3 and drive Xero forward faster into the Agentic AI era.

As I said, it's been a 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 the Melio acquisition itself, I want to highlight a few other accomplishments. First, the launch of Xero BillPay powered by Melio on 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 take-up with thousands of customers already signed up and TPV accelerating month-over-month since that launch. Secondly, key product launches across the 3 x 3, 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 improved the Xero mobile experience to further uplift direct acquisition. Most importantly, we continue to roll out key AI features and new AI innovation throughout the year.

From the general release of auto bank reconciliation to Financial Insights and JAX to the partnerships announced with both OpenAI and Anthropic to real-time powered AI chat in our support channel, 2026 was a year of high velocity delivery and learning. 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 NZD 530 million, 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 SMB 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 and spend on the back of this momentum. This is a deliberate sequencing decision.

We wanted to get the 3 x 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 and strategic growth vector 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, $28 billion from Xero invoicing TPV, which is almost double from FY '24 to '26 and $34 billion from Xero BillPay TPV powered by Melio. Total payment and invoicing revenue reached $535 million, up 53% on a pro forma basis year-on-year.

Bill pay drove 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 scales, our revenue model is also shifting faster towards a consumption-based model.

Pro forma transactional revenue, including both Xero invoicing and Melio BillPay has grown from 7% of group revenue in FY '23 to 18% in FY '26. This is a critical shift in the AI age, 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 SMB operations.

Pro forma payments revenue has grown at a 70% CAGR over the same period, reaching that $535 million I spoke about. The 2 revenue streams of 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 lets 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 and opportunity with multiple strengths 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 with investments like Syft 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 mean the 4 layers of our offering that customers use.

At the foundation, our infrastructure layer connects thousands of bank feeds, tax APIs and compliance support across the 3x3 jobs, including regulated payment rails and the ecosystem we support of 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 from 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 decisioned 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, just the Xero applications layer in the agent suite behind JAX, 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 tune each agent underneath JAX 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 with 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 GTM 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 are aware, through our Anthropic partnership, we have now built a connector that allows customers to leverage Xero's financial intelligence directly inside Quad and also drive 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 used at least one 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's transaction data and context and the harnesses we've created around generic LLM model capabilities.

JAX 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 trust in it.

We've also launched recent newer features such as AI invoice e-mail generation and new AI-powered document capture 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 broadening the types of documents we can process, meaning customers can also get a more complete picture of their business with minimal effort. Another example is 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 bundle some AI features into existing plans, so usage grows naturally without friction. This supports the second principle of adoption.

We want to find the balance between bundling and allowing 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 is to experiment with what's possible, try new features and new business models proactively and have bets that are not just certain but also speculative within our capital investment in AI.

I'm excited to share that first part of our cloud partnership is live today with the MCP integration of Xero into Claude. If you're an existing customer, you can now connect Xero into Claude and get intelligent answers 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 bet we are launching today at Xero, XeroForce.

What is XeroForce? It's an easy agent builder that lets customers turn their own custom 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 APIs to custom build a full app, XeroForce 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 prompt-led and uses natural language.

We are very early on building XeroForce, but the agentic era 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 Xero. 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 rebuilt our time sheets experience, completing in 10 weeks what would 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 60% of customer queries resolved instantly and over 60% CSaaS.

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 lifted U.S. search visibility from 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 landscape. 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.

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.

Can I do a quick follow-up? That's very helpful, Claire.

Free cash flow is one thing, but I guess the other investor focus is what free cash flow Rule of 40 means for EBITDA. Given you just said yes to all of the above, it kind of suggests an FY '28 revenue number maybe around $4.5 billion, just growing the FY '27 guidance in the low 20s.

And to get 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 $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 declare Rule of 40 more comfortably. So is that broadly correct?

Yes. I'm not going to give me exact numbers in terms of the guidance in fiscal '28.

But what I would say, 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 from the Xero core, we also have that scale 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 Sukhinder? Sorry to start with the numbers, Sukhinder.

But 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 anthropic partnership.

So maybe if you could help us with how you think about how that partnership helps or harms you on both product and on the distribution side, please?

Sure. 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 the launching today of our MCP connector. Now the MCP connector is a prerequisite to being able to do deeper integration.

So I would say we're well on our path, and we're excited. And I think Claude's excited with us.

So I think Claude's own announcements 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 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 XeroForce, 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 lead 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.

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 the new AI features in FY '27.

I mean, can you give us a little bit more color in terms of what we'll 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 models. where a feature may consume a lot of compute or be of 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 to, on the one hand, make sure we continue to deliver core value inside of 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 o, 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.

We -- 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 what Sukhinder just mentioned, underlying strong momentum as we exit fiscal '26, but the reliance on the incremental AI monetization is on the small side.

Bob, one last thing I want to make -- 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 pack to make clear that we are not a seat-based pricing model. I think this is quite important.

So it was a 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 lifting 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 syndications really sort of fired up in sort of the second half as well. So any comments there as to what drove that strength?

Yes, absolutely. This is Claire again.

Yes, I'm really happy with the overall payments growth, plus 58% year-over-year in fiscal '26. And 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 a strong revenue growth in Melio as well. And what we see -- pleased with the take rate assumptions.

I think what we see is 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 Melio and the broader 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 Fiserv 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 Fiserv 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 team is excited about that and so are we.

I might start off with the U.S. as well.

It looks like in the core accounting business in the U.S., you've had around 58,000 subscribers. So just wondering if you can get some color on the profile of those new additions.

Are we seeing them coming on to the platform at higher ARPUs? Like are they attaching Melio on top?

I'm just keen to get some color on the additions there.

Yes, sure. Well, first and foremost, I think we're pleased with the increase and improvement in our 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 doubled 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, I'd say, just a 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 at a better mix.

Wonderful. That's great.

And then just on Melio as well, it looks like second half losses did increase half-on-half. So I just wonder if you can give us some, I guess, puts and takes on the Melio profile on costs coming into '27 and I guess, confidence 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 costs in the 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 seeing as we exit fiscal '26. As we look at fiscal '27, what I would say is, as you can see, really 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, continues 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 for me on the CR partnership. How are you thinking about the value capture between yourself and CR over time?

I think you mentioned you see QR as a distribution partner. So do you see opportunity moving forward that CR can bring in new subscribers?

Or is there a bit of a trade-off in like functionality that you might not be able to monetize in the future that goes to CR? I'm just trying to get a feel for how you're thinking about the value capture between yourself and the LLM over time.

Well, as you know, all of these models are early. So I think it is -- 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 Cloud and the full zero opportunity on zero.com.

It could mean we figure out another economic model with Cloud 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.

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 impacts 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 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 the LTV to CAC metrics, we were really happy that we saw that improvement to your point. But with that incremental investment, that does -- that will be an additional CAC 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, but 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 come out formally as a SKU 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 at Xero is to make sure that we're continuing to deliver multiples of 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 Syft Analytics and Xero Analytics being available on the product, I would point to Word papers is now available to the Australia customer. The inclusion of Super and being able to have our Super capability within the Xero Australia 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 for people to understand, a few minutes a day, but over several days of intermittent outages.

And I think for our customers in Australia specifically that were doing tax filings with the ATO, quite rightly, they were frustrated by that. As a result, we issued both an apology, let them know what we were 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 that product. And again, for us, this is a multiyear game on making sure the right customer has the right SKU and that there is an offering at every level for the Australian customer.

Just 2 questions from me. The 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 '28 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 bed down and improve as we sort of head into '27?

And then a second question, just for Claire 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 '27 and beyond.

Sure. So I'll take the first part of the question, of course, and Claire will take the second.

So 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 BillPay 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 ruled out talking to Xero because they were only in the short-term QuickBook shop are now opening up conversations with us because we have an additional very competitive offering in BillPay.

So I'd say these are the things we want to see come to further fruition because the GTM teams just combined formally with the org structure in February.

Thanks, Sukhinder. Yes.

And just on the effective tax rate, as you mentioned, Nick, we saw a much higher level of ETR in fiscal '26 on a headline basis, mainly driven by the media losses -- and 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 into fiscal '28.

So less of an impact as we look forward without giving you like 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.

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.

So just keen to understand, is this sort of a branding exercise that QuickBooks has done because you're a partner as 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 wins here, 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. So 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 it's because all the promos saying QuickBooks, you don't think that's an issue because you have an arrangement, so that will evolve over time, right? Just to clarify.

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 them 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'll come back to Sukhinder on the U.S. Just thinking about the revenue guide, Claire, 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 0 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 given 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, very strong momentum. And I guess the increased marketing is a sign of your 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 your international CAC is $1,000 per gross add, that should be incremental 50,000 subscribers, right?

I know that's pretty crude math. 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 and improved economics on CAC 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's in the 30s, 40s, 50s that we enjoy in other markets that has been built over 20 years, 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.

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 ARPC -- 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.

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 Coaches 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.

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.

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.

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.