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Operator: Thank you for standing by, and welcome to the Xero Limited 2026 Interim Results Conference Call. I am joined by Xero's Chief Executive Officer, Sukhinder Singh Cassidy; and Chief Financial Officer, Claire Bramley. [Operator Instructions] I would now like to hand the call over to Sukhinder Singh Cassidy, Chief Executive Officer of Xero. Please go ahead.
Sukhinder Cassidy: Good morning from Sydney, Australia. Thank you for joining our investor briefing today covering Xero's financial and operating results for the half year ending September 30, 2025. I'm Sukhinder Singh Cassidy and I'm with Claire Bramley, our CFO. Our first agenda item is the summary of Xero's performance for the half year. I'll then pass to Claire to cover our financial results in more detail before I finish with strategic priorities and Xero's outlook. After that, we'll move to Q&A. So moving to a summary of our results on Slide 5. We are very pleased with our H1 fiscal '26-year results, which clearly demonstrates our sustained revenue momentum and execution against our strategy. We continue to achieve strong revenue growth across our 3x3 portfolio. This, along with another meaningful increase in profitability, enabled us to again deliver above the Rule of 40, demonstrating strong cash generation. I'm going to touch on the key metrics here, and Claire will cover them in detail later in the presentation. Operating revenue grew 20% year-on-year to reach $1.194 billion or 18% in constant currency. This strong growth comes despite a tough prior period comparison. Adjusted EBITDA was $351 million or up 12% year-over-year. Finally, our solid operating results and strong cash generation resulted in a Rule of 40 outcome of 44.5%, an increase of 0.6 percentage points year-over-year. I'll now spend a few minutes outlining the regional contributions to revenue growth. We saw each of our largest markets, Australia, the U.K. and the U.S., make a strong contribution. ANZ remains a core component of our portfolio and continues to deliver robust quality growth off a large base. You can see the sustained performance reflected in our results. We delivered 17% revenue growth year-over-year. This was the result of continued subscriber and ARPU expansion with subscribers up 7% and ARPU growing 12% year-over-year. Australia continues to drive strong revenue growth, up 19%. Subscribers were up 9% year-over-year. Australia is making good progress in a highly penetrated market, continuing to add new features to support ARPU expansion while delivering solid subscriber growth off an already large base. Its GTM playbook is evolving to progress new customer mix. But as we've said before, moving the back book of existing customers is a longer-term opportunity. New Zealand delivered quality growth in what is our most deeply penetrated market. Revenue grew by 8%, with net subscribers up 4% year-over-year. This is a positive result and ahead of economic growth in this mature market. Overall, the performance of ANZ reflects the strength of our core market relationships and our ability to drive growth through strong execution and a focus on customer value. Turning our focus now to the International segment, which covers the U.K., North America and our Rest of World markets. I want to note that this segment is fundamental to our future scale and is executing strongly against our strategic priorities. International revenue grew by 24% year-over-year. Looking at the individual markets. In the U.K., we delivered a robust performance with 25% revenue growth. Subscriber growth remained strong at 13%. We saw early indications of tailwinds related to HMRC's regulatory changes flowing through. We anticipate the majority of the market benefit will come over the next few periods. We are excited as this will support subscriber growth, but we would remind you that there is a negative impact on ARPU as smaller businesses adopt our lower-priced compliance offerings. North America continues its momentum, delivering 21% revenue growth despite the headwind of no revenue from Xerocon this half. Adjusting for this, growth was 26%, a great result. Subscribers grew 15%, a good outcome in what is typically a seasonally weaker half. I will talk about our Melio acquisition shortly, but keep in mind that the deal immediately provides a step change in the scale of our U.S. business and we're really excited about its ability to accelerate growth in the U.S. Finally, our Rest of World markets grew revenue by 22% with subscriber growth of 11%. In summary, strong execution in the International segment is building a solid foundation for sustainable, high-quality growth in these markets. This slide brings the key financial outcomes together, showing how we are successfully balancing growth and profitability, while delivering above Rule of 40 outcomes. We're consistently delivering EBITDA and free cash flow growth, which is contributing to strong cash flow generation. The free cash flow margin reached 26.9%, which you can see on the middle chart. Adding this to revenue growth, where we use the 18% constant currency metric, resulted in our Rule of 40 outcomes increasing another percentage point to reach 45%. We are very pleased with this result, which demonstrates our ability to deliver sustained revenue growth supported by disciplined investment to grow profitability while at the same time adding value for our customers. Before I hand to Claire, I want to briefly acknowledge the completion of the Melio acquisition in October. We're incredibly excited to bring our 2 businesses together, and I'll discuss this in more detail later in the presentation. Now I'll hand over to Claire to walk us through the financial results.
Claire Bramley: Thank you, Sukhinder, and good morning, everyone. It's a pleasure to be here to present our financial results for the first half of fiscal '26. We have delivered another strong half. As Sukhinder said, our results show sustained revenue momentum across our portfolio of businesses and the effective execution of our strategy, allowing us to deliver another above Rule of 40 outcome of 44.5%. Starting with revenue. We have a large recurring revenue base spread across a global portfolio, which enables us to consistently deliver strong top line growth. Despite the tougher prior period comparison, we maintained strong revenue growth this half of 20% year-over-year. Subscriber growth was 10% to reach just shy of 4.6 million subscribers at the end of the period. ARPU growth was 15% on a reported basis, noting that our ARPU disclosures are based on the end-of-period foreign exchange rates. On a constant currency basis, ARPU growth was 8%. The continued balanced growth in both subscribers and ARPU drives our AMRR, which I'll talk about on the next slide. AMRR reached $2.7 billion. This represents a 26% year-over-year growth or 19% in constant currency. AMRR, like ARPU is calculated using end-of-period foreign exchange rates. The AMRR exit rate sets a strong foundation for growth. The short-term discounts and hedging are excluded from this number and will impact how this translates into full year '26 revenue. We saw both impact our revenue growth in the first half relative to AMRR growth. We are continuing to deliver very healthy gross profit, with gross profit margins of 88.5%. The slight reduction year-over-year reflects our continued investment in our customer experience. Now let's look more closely at the drivers of our 10% ARPU growth in the first half, which you can see on Slide 12. Price changes reflect amortization of the significant value we have added to Xero from new features and capability improvements. Price increases typically happen in the first half of the year by our Australia, New Zealand and U.K. regions. So we expect pricing to contribute more significantly to ARPU during this period. The specific price changes across our plans reflect a more strategic and segmented approach. This is evidenced by our decision to hold prices flat on all lower end Ignite plans in each of these markets. Moving to product mix. We are seeing positive results from our go-to-market strategy with new customer mix incrementally improving in the U.K. and the U.S. as our targeted sales motions become embedded. In Australia, there have been some headwinds as we added payroll back into our lower tier plans. This has seen some customer shift towards these plans. While overall, we have made progress on our new customer mix, as Sukhinder mentioned, back book progress remains an opportunity in the longer term. Across all regions, we are continuing to evolve our direct go-to-market channel to support our focus on mix. We are successfully targeting higher-value customers through applying short-term promotional discounts and deepening our lead generation through avenues such as partnership and affiliate marketing. Finally, platform revenue growth continued to drive ARPU expansion, largely due to strong payments progress. So let's turn to that. It is worth reminding you the payments contribution in the first half was entirely from our existing accounts receivable offering as the Melio acquisition did not complete until October. We continue to see excellent momentum with payments revenue growing 40% year-on-year, mainly from continued strong TPV growth of 35%. This revenue have been generated across our 3x3 and reinforces our confidence in the value of providing integrated payments and accounting to SMBs. Employees paid through Xero Payroll increased 5% year-on-year. This lower growth rate reflects the deep penetration and large existing customer base we have in Australia. We are looking forward to the opportunity to start driving payroll penetration in new untapped markets, such as in the U.S., where our embedded offering with Gusto goes live in December. Now let's look at customer retention. MRR churn was 1.09%. This remains below our long-term pre-pandemic average of 1.15%. The slight increase from the last half, in part reflects our decision to incrementally allocate investment to the direct channel as well as target growth in our International segment. As we've noted before, while these segments have structurally higher churn, they also typically attract higher ARPU customers, which aligns with our strategy to optimize the total value of each subscriber. Our focus on the value of a subscriber is shown in our LTV, which expanded to $19.56 billion with LTV per subscriber increasing to $4,261. With regards to our acquisition metrics, customer acquisition cost per gross add was $757, with a healthy and efficient payback of 15.2 months. The increase in CAC aligned with our strategic focus on attracting higher value subscribers to drive mix rather than just focusing on volume. We are investing in data-driven tools and building our internal capabilities across digital performance marketing to drive our direct channel. We are also continuing to leverage our partner-facing teams to better support our accounting and bookkeeping customers. This resulted in an LTV to CAC ratio of 5.6, slightly down from the prior period, driven mainly by the ANZ region, which remains at an industry-leading ratio of 10.7. Let's move to our operating expenses. The OpEx ratio, excluding acquisition costs, was 72.8% in the half. We have revised our fiscal '26 outlook and now expect the full year ratio to be around 70.5%. Within this, we've added Melio, adjusted for currency and importantly, realized some efficiency benefits while continuing to fund investments for growth. Our capital allocation framework remains disciplined and returns based, which in turn aims to deliver improvements in efficiency, as you can see through our revenue per FTE, which increased 16% year-on-year. As we realize this efficiency, we are able to decide the proportion that we reinvest in line with opportunities we see and our Rule of X approach. Now let's turn to the key investment areas for the half. Sales and marketing costs were 31.7% of revenue, a reduction of 0.3 percentage points year-on-year. This reflects disciplined investment in digital performance marketing as we continue to strengthen our internal capabilities. Product design and development costs grew 18% year-on-year, equal to 28.2% of revenue. Gross product spend, which includes capitalized costs grew 24%, equal to 34.6% of revenue. This reflects our continued focus on product velocity, including hiring domain experts to support our new AI capabilities. Our capitalization rate was higher at 47.4%. This was driven by more developer time being spent on releasing new products and features, many of which we announced at Xerocon Brisbane. General and administration costs were 12.9% of revenue, an increase of 2.4 percentage points. As we flagged at our fiscal '25 results, this increase was expected and is primarily due to higher executive personnel costs associated with the accounting treatment of option and sign-on equity grants announced last year. The majority of these noncash costs are not expected to recur in fiscal '27. Moving down to the bottom line. Our sustained revenue growth and disciplined capital allocation delivered an adjusted EBITDA of $351 million for the half, a 12% increase year-on-year. Our adjusted EBITDA margin was 29.4%, down 2 percentage points, driven by the nonrecurring G&A expenses and investment in sales and marketing previously mentioned. Adjusted EBITDA, excluding total share-based payments, improved by 0.8 percentage points to 38.8%, demonstrating the continued positive operating leverage in the business. Our profitability and discipline translated into strong free cash flow. We generated $321 million of free cash flow in the half. This represents a free cash flow margin of 26.9%, a significant step up from 21% in H1 of fiscal '25. The high-quality recurring nature of our business continues to deliver very strong cash realization from customers. Our payments to suppliers and employees grew only by 10%. This lower cash outflow relative to OpEx growth was partly due to the timing of some vendor payments as well as the higher proportion of noncash share-based payments. We saw a $25 million increase in net interest received, reflecting the higher cash balances held prior to completion of the Melio acquisition. This benefit is temporary as we have now completed the transaction. Finally, there was a limited impact from tax payments in H1 as we depleted prior year tax prepayments. We will enter a more normal New Zealand corporate tax payment rhythm in the coming periods, which will impact future cash tax payments. It's worth keeping these factors in mind as we head into the second half. Our strong cash generation further strengthens the balance sheet. We ended the half with a net cash position of $3.2 billion, supported by the net funds raised for the Melio acquisition. Following the completion of the Melio acquisition, our pro forma balance sheet shows a net debt position of approximately $0.5 billion with a pro forma net debt-to-EBITDA of approximately 0.9x. This reflects our commitment to maintaining a strong balance sheet while also creating a clear pathway of meaningful deleveraging. It also ensures we retain flexibility to continue pursuing our build, partner and buy approach to capabilities. It is important to note that the shift to a net debt position will increase interest costs and reduce interest received in the second half of fiscal '26. This change in our balance sheet position will create a headwind to our Rule of 40 performance in the second half of the fiscal year compared to the first half. With regard to the completion of the Melio acquisition, Slide 21 outlines the consolidated go-forward business showing Melio included on a pro forma basis for the first half of fiscal '26 compared to the same period last year. The disclosure here is intended to help with the understanding of the combined business on a like-for-like basis. We won't be providing separate performance metrics for Melio going forward. Its revenue contribution will form part of the new U.S. region, of which you can find more details in the appendix. In the first half of fiscal '26, underlying Melio revenue growth reached 68%, driven by the addition of around 7,000 new customers since the second half of fiscal '25 and by an increased usage per customer. Together, they delivered an 18% lift in underlying TPV. This strong growth will support the scaling of our U.S. business, as shown in pro forma revenue growth of 53% year-over-year. Turning to profitability. Pro forma EBITDA reflects Melio's current scale and maturity. I'll walk through a few of the key drivers of this result and why we remain confident in the scale opportunity and the returns it can generate over time. Melio's gross margin has been broadly consistent with fiscal '25. That's mainly due to the timing of product-led syndication additions. We are clear on the drivers to expand margin going forward through leveraging scale, syndication, payment mix and subscription growth. Operating expense growth reflected a planned investment in sales and marketing to support this growth opportunity. We expect to see scale benefits come through as Melio continues its rapid growth. There are also 2 future considerations not included in the pro forma that I want to call out. First, it doesn't reflect the shift to a net debt position or the noncash amortization of acquired intangibles we highlighted at completion. Second, the accounting treatment of Melio's management earnout and incentive plans will add about $10 million in operating expenses in the second half of fiscal '26, which isn't reflected here. The pro forma Rule of 40 came in at 39.8%, a really solid outcome. While it does face some headwinds from the shift to net debt, we remain very confident in our ability to deliver against fiscal '28 Rule of 40 and revenue growth aspirations. To close, the first half has been another strong period of execution for Xero. We're delivering high-quality revenue growth, strong cash generation and remain well positioned to keep investing with a disciplined Rule of X framework to capture the significant opportunity ahead. Thank you for your time. I'll now hand back to Sukhinder.
Sukhinder Cassidy: Thanks, Claire. I'll now talk to our FY '25 to '27 strategy and update you on a few recent news we've made. As you know, our vision and purpose are constant at Xero. Successfully delivering against these is key to achieving our aspiration, which I'll cover in a few moments. Our winning on purpose strategy, which you saw us lay on Investor Day in February 2024, has 4 key pillars: win the 3x3; build a winning GTM playbook for Xero's next chapter; win the future, which is about focus best on innovation; and lastly, unleash Xero and Xeros to Win. These 4 pillars are underpinned by our disciplined capital allocation framework for investment. This tightly aligns with our strategy, our Rule of 40 aspirations and our build, partner or buy approach to pursue organic or inorganic opportunities. We're making great progress executing against our strategy with focus and purpose to deliver tangible value for our customers. We've made a number of moves in the last 6 months, which we highlight on Slide 24. There are 3 key moves here that I want to spend some time on. Firstly, we continued our strong product delivery momentum through working hard to build product ourselves, but also through partnerships and our acquisition of Melio, which I'll discuss shortly. We've made significant progress this half in delivering important product features to help customers across our 3 largest markets, Australia, the U.K. and the U.S., to complete the 3 most important jobs to be done, accounting, payroll and payments. A few of the key product highlights rolling out are Analytics Powered by Syft across U.S., U.K. and Australia as well as launching our new customer homepage currently in beta to give customers an insight rich view of their business performance. In addition, we're announcing today the beta launch of our embedded payroll solution through our partnership with Gusto to provide U.S. payroll capabilities. Secondly, we implemented a series of changes to strengthen our go-to-market playbook. Our core focus has been increasing the sophistication of our sales motion to improve mix. As Claire noted, we've made encouraging progress on this, especially in the front book, and we're intensifying our efforts on the back book for existing customers. Thirdly, we're allocating capital for long term as we look to win the future through strategic investments in AI and mobile. We're really excited about the next evolution of JAX, our AI financial superagent. I'll spend some more time on this in the next few slides, but I'll call out one key highlight, which is our decision to partner with OpenAI to bring search capabilities for financial information inside the Xero product. We also continue to improve the mobile onboarding process and make mobile payments easier by rolling out tap to pay and adding mobile bill upload and simple invoice template setup. And we're also enabling our people to move faster for customers and do the best work of their lives, so we can unleash Xero and Xeros to Win. We're empowering all Xeros with AI education and tools to automate repetitive tasks, increase internal efficiencies and drive better value for our customers. We now have over 70% of engineers using AI in their daily workflows and nearly 50% of customer support responses are drafted by AI. Alongside this, we continue to invest in our purpose and performance-based culture with improved employee development opportunities for all Xeros. So you can see our investment is disciplined and aligned to our strategy. Coming back to our investment in AI. On the next slide, I'll talk to this in a little more detail. As a leading global SaaS business that has long been powered by machine learning and traditional AI, Xero continues to see AI and generative AI specifically as a significant opportunity to innovate and invest, all with the goal of unlocking significant value for our customers. At Xerocon Brisbane in September, we were thrilled to announce the evolution of our AI financial superagent, JAX, Just Ask Xero. JAX is built on Xero's AI agentic platform, which orchestrates multiple specialized subagents across Xero. Our vision is simple, to reimagine financial management using AI to help small businesses and their advisers work smarter together. This vision is supported by 4 unique pillars. The first is reimagined experiences. We're leveraging AI to reimagine the Xero experience. The goal is to have JAX help our customers interact with Xero seamlessly across multiple touchpoints from xero.com and mobile to tools such as e-mail and messaging. We've already begun leveraging this strategy with the beta launch of our new homepage. It has JAX embedded in a customizable insight-rich design, quickly showing users what to focus on so they can take action sooner. The second pillar is automated actions and workflows. JAX is designed to save our customers' time by automating routine tasks and workflows such as invoice creation and automatic bank reconciliation. We launched the beta for automatic bank rec in October, which tackles one of the most common and time-consuming jobs on Xero. Users retain full visibility and control via the new reconciled page. This single view allows users to see and understand JAX's reasoning, easily make corrections and manage supporting documents. The third pillar is actionable insights. JAX unlocks advanced financial insight for our customers by combining data from their own business with information from connected apps. This also allows them to explore their data and dig deeper into their finances. JAX also brings them answers from beyond their business, incorporating real-time external data from across the web on topics like market trends, thanks to our collaboration with OpenAI. The fourth and perhaps most important pillar is to be a trusted partner. JAX is built on a foundation of security, privacy and decades of accounting expertise, offering a trusted partnership to our customers. Its accuracy is superior to AI, relies solely on large language models. This ensures greater reliability and confidence in the output. So to summarize, we told you at our last result, we have an ambitious AI agenda in FY '26, and you can see we're pursuing this and adding customer value at pace. We have strong confidence in the value of this technology. Our key focus for now is helping customers engage and realize that value. This will in turn further inform our approach to monetization. I'm excited to dive into the next steps for integrating Melio, but first, let's quickly recap the powerful rationale behind this acquisition. It's what fuels our confidence in the significant value creation opportunity ahead. First, there's a critical customer need in a large and growing market. SMBs and their ABs watch their accounting and payments together. It creates efficiencies, improves their cash flow and importantly, saves them time. And this is reflected in the significant TAM for U.S. SMB payments. Secondly, the combination is a powerful strategic fit for Xero. Acquiring Melio aligns with our 3x3 strategy and gives us a step function change in our U.S. product proposition, scale and monetization opportunity. Third, this is a best-in-class asset. Melio has a world-class team and platform. Many of you have already met Matan. The quality he and his team bring to Xero is significant, and this is demonstrated in the exceptional growth and strength of the Melio offering. Fourth, and most importantly, together, Xero and Melio is a compelling value creation story. These are 2 complementary platforms that can drive significant scale together. Melio's growth trajectory in U.S. penetration uplifts our scale in the U.S. business from day 1 with much improved unit economics and a larger and stickier ARPU. As this business continues to scale at pace and is powered by Xero's growth engine, we have strong confidence in meeting our aspirations and capturing a very attractive value creation opportunity, and we are moving quickly to accelerate growth and capture this value. We are very pleased to announce our first key integration milestone, the launch of Melio bill pay inside of Xero, which is now scheduled for December 2025. This will immediately enrich our U.S. offering, providing small businesses with a seamless and powerful bill payment solution directly within the Xero platform. It will give Xero customers access to Melio's payment functionality to help them save time and optimize cash flow, including multiple ways to pay and visibility on payment times. Our ability to move at pace on this integration is a testament to Melio's platform and the efforts of both the Xero and Melio teams to drive towards realizing the value of the acquisition. In addition to this, we're moving quickly to leverage Melio's GTM capability and reach to drive Melio's stand-alone growth and cross-sell opportunity to xero.com. I'd now like to move to our FY '26 outlook. As Claire said, we have lowered our OpEx guidance and now expect total operating expenses as a percentage of revenue to be around 70.5% in FY '26. As we have previously explained, there were some nonrecurring elements in this, and we expect the ratio to be lower in H2 than H1. This ratio now includes Melio but excludes the impact of transaction costs. Incorporating Melio provided a small benefit with other drivers, including improved efficiencies contributing the majority of the reduction. Of course, in addition to this, we continue to pursue our aspirations which we updated when we announced the Melio acquisition. We expect the combined business to significantly accelerate U.S. revenue growth and give us the opportunity to more than double Xero's FY '25 group revenue base in FY '28, and this is before synergies. And we continue to anchor on our Rule of 40 aspirations and deliver a balance of both growth and profitability at the group level. This revenue growth outcome is anticipated to support the achievement of greater than Rule of 40 outcomes for the group in FY '28 with the dilutive impact in the interim as we continue to invest in Melio and as business scales. Our operations are strong and they are credible, and we're really excited about achieving these. I'd now like to wrap up. There are 3 key themes from today's presentation, sustained strong revenue growth across our 3x3 portfolio, continuing to deliver a greater than Rule of 40 outcome with strong cash generation and the successful execution of our strategy, securing key wins across our 3 core priorities. This momentum is consistently enhancing the value we deliver to our customers as we continue our journey to become a world-class SaaS leader. Before I conclude, I would like to acknowledge our teams around the world. And I really want to thank them again for their hard work as we continue to do all we can to support our customers and partners. That concludes our presentation. I'll now pass over to the moderator for your questions.
Operator: [Operator Instructions] The first question today comes from Eric Choi from Barrenjoey.
Eric Choi: Could I just do 2. Sorry, it sounds a bit of a long-winded one, but just the share price is down today, and I think it's because there's an implied accounting EBIT downgrade versus consensus. Just wanted to expect at an operational EBITDA hit and actually maybe an even top line upgrade. And so if you just bear with me on the logic, like if I look at your revenues and AMRR of the base business, it actually implies second half revenue growth is accelerating versus the first half, which consensus didn't have. And then Melio grew 68% on an underlying basis, and so market growth of Melio was below this as well. So revenues are clearly ahead. And then on cost, and if we just take accounting D&A out of it for a second, you've actually lowered your core cost to sales, which offsets growth in the kind of Melio's gross margins holding flat. So at that EBITDA level, it actually doesn't need to move much. But then at this accounting EBIT level, which incorporates D&A, sell side, including myself we're kind at bad modeling amortization and purchase price amortization and all these other things. So just that D&A ends up being high and therefore, you've got an accounting EBIT business. So I guess the overall question is, operationally, it's actually doing in line to better, but you've just got this accounting EBIT miss. Is that right?
Claire Bramley: Eric, this is Claire. So yes, thanks for your question and laying that rule out. I think the first thing I would say is we're really pleased with the strong execution that we've seen in H1. And to your point, really strong top line growth coming from the Xero standalone business and then a lot of momentum as we move into the second half. So you're absolutely right. You can use that AMRR as a kind of foundation for that momentum that we see as we exit the first half, and then that really strong Melio growth that we reported, put those together for the second half. We're really excited about the growth opportunity, not just for the second half but also in the medium to longer term. So I think that's really important to note, and gives us a lot of opportunity. From a cost standpoint, yes, I'll just double-click into the reduction in the OpEx ratio guidance that I gave. I just want to know, we have included Melio into that, but Melio does have a very limited impact. And also from a CapEx standpoint, we were anticipating in H1 that the CapEx rate would be higher. That is always aligned when we do like a Xerocon event. We published, as Sukhinder suggested, in our prepared remarks, we've been publishing a lot of new product features and great product velocity. So that was factored into our overall original outlook for OpEx. So as you think about that reduction, that's actually coming -- little is coming from Melio. None of that improvement is coming from capitalization, and it's actually coming from other areas, the key factor being operational efficiencies but also revenue. So this should be a strong improvement from an overall EBITDA. I'd stand to your point, in terms of rolling through that D&A. But I think it is really important that we are anticipating those capitalization rate to reduce in H2 and so that this improvement that we're seeing is really coming from underlying operational efficiencies, some currency and very limited impact from Melio.
Eric Choi: Can I just do a quick follow-up, and I realize you never go into exact numbers, but just to kind of say future variance, just a rough framework for how we should all think about FY '27. I guess if you use your cost to sales guidance for FY '26, it's pretty easy to get to an EBIT number. And if you add some D&A back, you're kind of in the $740 million to $750 million EBITDA range for FY '26. And then you've told us that $45 million comp impact falls out next year. And then obviously, you get operating leverage on any revenue growth that you deliver as well. I mean it seems like a fairly obvious question, but FY '27 EBITDA would still have to be in the 800s. Just high level, have I missed anything there?
Claire Bramley: No. I think as you think about the EBITDA, clearly, as you said, I'm not going to be giving an outlook statement for fiscal '27. But I think what I would do is kind of double down on the fact that we are continuously focused on that overall acceleration of revenue growth and remaining high revenue growth, and we see a huge opportunity with Melio. If you add that into the fact that we are continually focused on efficiency, you've seen great, I think, historical track record in the last couple of years of Xero, reducing its overall OpEx ratio. And then I've done that, again, adjustments today with lower OpEx ratio. And I think the advantage of that is that we're investing. We're continuing to invest in profitable growth, but also doing it in a very efficient way. And I think if you think about scale, you think about the excellent gross margin, I mean, we're above 88% on Xero underlying gross margin and you think about that OpEx efficiency ratio moving forward, a lot of good indications in terms of the opportunity ahead.
Operator: The next question comes from Bob Chen from JPMorgan.
Bob Chen: Just a quick one on the churn. Obviously, it's ticked up a bit. And I think your comments earlier is that, that has been driven by that focus on business edition. I mean when we think about subscriber growth from here because of that shift towards focusing on business edition, you get that sort of high change, could we naturally expect your incremental subscribe from you just to be a little bit lower, but with better ARPU outcomes?
Sukhinder Cassidy: Thanks for the question, Bob. It's Sukhinder. So a couple of things. First of all, I think that, as we've noted, churn is still below historic pre-pandemic levels, and we feel good about kind of where churn sits overall. I think a couple of factors are obviously driving that, that are ones to think about. While we don't break out the difference between the direct channel and the partner channel, we have said that direct is really performing. And that and the nature of that channel is that it does have higher churn. Performance marketing will bring more to the top of the funnel and more will churn out. In that, historically, our partner channel has lower churn and direct as we allocate to it, has higher ARPU, higher lifetime value, but also churn. So there's a mathematical reality. So that's the way I would think about it. I also just think we continue to feel very good about our overall balance on quality of subscribers and quantity of subscribers. If you note, that is a very explicit shift that we made in the strategy on Investor Day. It was coupled with our long idle removal. And it really speaks to, like we're always going to be keeping an eye on the quality of the sub and obviously, continue to want to build share and look at overall absolute subscriber numbers. So I'd say we feel very good about the overall trend, where churn level sits and recognizing that the direct channel will drive both a higher LTV customer but also higher churn mathematically.
Bob Chen: Great. And just a quick follow-up to that. We've obviously seen ARPU increase significantly over the last few years. Has that also played into that sort of churn number as well?
Sukhinder Cassidy: In what regard? I mean I think the business edition is, again, driven disproportionately by our direct channel, and that already has a higher ARPU. So again, I'd say it's a mathematical outcome more than anything else. But I think when we talk about churn, it's not really about ARPU. It's about having a big performance funnel where you're inviting a lot of prospects into the product. And then you will see an increase when you do that, have that do paid motion for direct customers, you tend to see higher churn in the first 90 days as an example. As more people -- lookie-loo is not quite the right example, but they're really just trying the product. Like I said, I think it's more a function of that than ARPU specifically.
Operator: The next question comes from Garry Sherriff from Royal Bank of Canada.
Garry Sherriff: Just focusing on North America. The revenue missed market estimates, and it sounds like it's mainly Canada being weak and also cycling Xerocon revenue. I mean is there anything else we're missing there in North America? I mean was discounting higher than usual? Or is it just pretty much all Xerocon revenue that you're cycling?
Sukhinder Cassidy: Sure. I think there are 3 things. First of all, you are right, if you back out Xerocon, the underlying growth you feel very good about and then if you back out Canada, you get to something north of 33% -- about 33% growth in the U.S. And so I think it's a function of Xerocon. Canada remains subdued. I think we continue to say that. Now you will have seen in this -- and in the last 30 days, there's been an announcement that open banking may finally be coming to Canada. We await that as a good positive, maybe momentum driver in the market. But to date, I'd say the move to cloud has been really suffering from lack of open banking. And the other piece is, remember, H1 is seasonally a weaker half for the business, for the North America business, given when taxes get filed. So I would note that we felt particularly good given it's a weaker seasonal half. And when you look at that U.S. growth, it's, as I said, back out Xerocon, U.S. alone is about 30%.
Garry Sherriff: Got it. Okay. And just a final one on Melio. Just wanted to clarify the numbers that you've reported. Does that include the Intuit subs that are to be exited? I just wanted to try and understand whether that was the case? And if so or if they're still in there, can you maybe just remind us how many need to be exited and when that's expected? Because I'm just trying to get an organic like-for-like growth for Melio. Maybe you already reported. I'm just not clear myself.
Claire Bramley: Yes, no worries, Garry. I would point you to the disclosures in our Investor Relations. We have given it to you on an underlying basis. So as you look at that kind of the new pro forma numbers we've given for H1 of '26, you can see that, that on an underlying basis, that is increasing. So we have adjusted for the -- for that kind of syndication partner exiting. And I think even on that underlying basis, you can see some really strong growth, both year-over-year and half -- over half both in the number of customers, in the TPV per customers, in the take rate. And I think we also mentioned that underlying revenue growth of 68% is clearly really, really strong.
Operator: The next question comes from Kane Hannan from Goldman Sachs.
Kane Hannan: One simple one. Just the comment in there around the combined business significantly accelerating U.S. revenue growth. Is that relative to the 49% pro forma number that you've done? Or is it more the 33% Xero stand-alone U.S. growth that you did in half?
Claire Bramley: Yes. I think if you look at the additional disclosures because you now see U.S. broken out separately and you see that in our appendix slide. So like you can see that the Melio growth in the first half is more than double our fixed Xero growth. And from a scale and volume standpoint, it's actually 4x. So yes, that kind of more than doubled you can see that just as we've disclosed those pro forma numbers in H1. And all of our announcement came for -- to make a finer point on it. When we said significantly accelerate, remember, we were comparing to Xero stand-alone at the point of announcement, right? So...
Kane Hannan: Yes, that's helpful. And then just the comments on Melio's GP margin sort of being flat. They're calling out the drivers extension being firmly in place. I mean does that mean you should be thinking about margin expansion in the second half? Also what are we waiting for, looking for, for that GP margin to start to tick up if the drivers are in place?
Claire Bramley: Yes, I think there's multiple things to think about when you think about gross margin for Melio. You've got the benefit of scale and the additional margin dollars that come through. And clearly, when you've got a growth rate at 68%, there's a big opportunity there. And then there would be areas with regards to the margin expansion. We are anticipating in the kind of short term, there to be a little bit of noise on the rate. But what we're pointing to is that we really do see those opportunities to expand both from a volume scale standpoint and a margin expansion over the medium to longer term, which gives us that confidence in hitting the aspirations that we laid out and getting above the Rule of 40 on a combined business in fiscal '28.
Sukhinder Cassidy: Yes. One other thing, Kane, I think, to Claire point, remember that there is margin take rates, and we talked about in this half, Melio having higher take rate products, improve like mix type of payments. So obviously, payment mix on melio.com is driver. Let's also remember though that a lot of GP driver is syndication. And syndication, this is where Claire says there will be noise. When partners come online, your syndication line also has a gross profit and attractive gross profit. So part of it is what you do on melio.com. Part of it is the puts and takes of partners deploying. And remember, Melio does not entirely control when partners deploy. This is why we have a lot of confidence over the medium term and the guidance -- not the guidance, the aspiration that we gave for '28, but I would remind you that partner syndication timing is not entirely Melio's control. So this could create noise within a quarter or a half, certainly.
Operator: The next question comes from Roger Samuel from Jefferies.
Roger Samuel: I've got 2 questions. First one, just on ANZ. I understand that you to invest more into the direct channel, but the LTV to CAC ratio is coming down. I mean 10.7x is still a very good number, but it's coming off 14. And do you think that it's becoming harder to attract new subscribers into the base? And where do you expect the LTV to CAC ratio to land?
Sukhinder Cassidy: Sure. Well, first of all, I think, Roger, you hit the key point. 10.7 is still a very attractive number. And I think it's fair to say when you're in a market that's very saturated, where you have high brand awareness, on a marginal basis, the next customer may be more expensive than last one. On an absolute basis, it's still attractive to go get them. And that's exactly what you see in our numbers. So we always need to make a call. Unlike look, on a marginal basis, would we rather pay this for the next customer, not get it, and our choice continues to be, we're going to be very mathematical. And if there is another subscriber to go get on an absolute basis, we're going to go after it, and we continue to see that opportunity. Now over time, I'm not going to give you an LTV number today. But as you know, we've also included that over time, we see the to further penetrate this market with more mix. We also see the opportunity to drive more attach of payments and other products. We just announced BGL and Workpapers. So we're going to continue to also drive I'd say, more penetration of different products for ABs and SBs through this business that over time, we hope continues to accrete to LTV.
Roger Samuel: Okay. And maybe a follow-up question on Melio. So if I back out Xero stand-alone looks like Melio incurred losses of about $56 million in the first half '26 on a pro forma basis, that's lower than minus 60% in the PCP. So I suppose the question is, when do you expect Melio to be breakeven? I mean if you look at the guidance which is yet to reach a Rule of 40, you're pretty close to that Rule of 40 already as a combined business, plus or minus the adjustments to interest expense and earn-outs. So yes, just wondering when you can expect Melio to -- Melio business to be breakeven?
Claire Bramley: Yes, I'll take that. So first of all, to your point, we did have a great combined Rule of 40 result in the first half. But as I mentioned in my prepared remarks, there are some future impacts that will negatively impact that as we move forward. However, we -- I think all of these numbers just give us that confidence in the profit opportunity that we see ahead in the Xero and Melio combined business. I think we're not going to give an exact date in the sense of when does Melio become profitable. I think we're months into owning them. We are extremely happy with the performance that they had in H1. The integration of the business into Xero, whether it's the getting that go-to-market, those go-to-market opportunities running, whether it's the product announcements and the Melio on Xero coming out in December, there's so much progress being made, which just gives us that extra confidence to deliver on those aspirations. And I think I'd come back to the fact that we are very optimistic about the opportunity from a profitability standpoint that we get from both the scale but also that margin expansion, but it's over time.
Operator: The next question comes from Rohan Sundram from MST Financial.
Rohan Sundram: One for me. On the operating environment, how are you seeing the state of demand from SMBs at the moment? And how would you compare it to 6 months ago and whether there's been any changes or improvement?
Sukhinder Cassidy: Thank you for the question. First of all, I'd say we see continued good demand, strong demand for the Xero product. And I think when we look out to indicators like XSBI, which as you know is our data set, we just published Australia and New Zealand results as well as -- and what we saw in both markets as well as the U.K. is Australia showing nice signs of recovery, New Zealand showing some signs of recovery, U.K. holding steady. And then in the U.S., we haven't published our next generation of XSBI yet, but we look to the NFIB Optimism Index, which stays at sort of all-time highs despite, I would say, that optimism index also showing a lot of uncertainty. So from what we can tell on the macro, there is some signs that Australia and New Zealand sentiment is getting better among SBs when we look at their real-time sales data in XSBI. U.S. optimism remains strong despite uncertainty and, as I said, U.K. holding steady.
Operator: The next question comes from Nick Basile from CLSA.
Nicholas Basile: Just a first question on Melio. I just want to clarify, I think one of the points Sukhinder made around integration. Can you talk to, I guess, what your expectations were on that. I think you mentioned bill pay was coming in December. Was that 2025 or next year? And then just in general, how you're thinking about Melio's performance in recent months relative to your longer-term targets to double revenue? I guess just one confirmation that you feel that the business is on track to help support that goal?
Sukhinder Cassidy: Sure. Well, first of all, we feel very good about the integration. As you can imagine, I would say, the integration of Melio bill pay into Xero actually gives us more functionality than we currently have with the partner that we're exiting, and it was done faster than anticipated. So I would say we feel really good about the integration. And I think that's a testament actually to Melio's platform. It is very easily integratable. And obviously, our teams started planning for this summer. So I think that we're really happy to get out a richer product functionality in both workflows and bill pay into the Xero product this soon. So that's December of this year, less than 30 days away. Number 2, I think when we look at Melio, what we've said is Melio performed in H1 in line with our expectations. And so we're really pleased about that.
Claire Bramley: Yes. I think I'll just double down on our confidence in meeting those longer-term aspirations. I think the performance that we've seen in the first half and the momentum that we've got going in the second half and beyond just gives us even more confidence in being able to be more than double our fiscal '25 revenue in fiscal '28, excluding synergies and back above the Rule of 40 by fiscal '28.
Nicholas Basile: Yes. No, that's very clear. I think from my perspective, December 2025 sounds like you're ahead of schedule. That's why I got that clarification. The second question. On operating leverage in the core business kind of if you think about it, whilst we still can, excluding Melio. The guidance feels like the ability to provide lower OpEx to sales, as you called out, is being driven by some degree of operating leverage or cost efficiencies in the core business. Can you just help unpack that in a little bit more detail? And again, as that '26 guidance kind of relates to the '28 sort of 3-year glide path to maintaining Rule of 40 whilst you're embedding Melio, which is currently loss-making?
Claire Bramley: Yes, absolutely. So that 70.5% new OpEx ratio is incorporating Melio. I'll just remind people that Melio does have a slightly different P&L to our Xero core business in the sense of the margin and the OpEx ratios are slightly different. So there's a slight benefit but it is limited from incorporating Melio into that 70.5%. The key factor I would highlight of that reduction is those operational efficiencies. And it was good to be able to drop those benefits through to the bottom line. And I think it's something that I -- we're really focused on here at Xero, and you've seen it in our historical trends is continuing to drive operational efficiencies at the same time as we're investing back into growth. And I think you can see that in our H1 results and the momentum as we go into H2, strong revenue performance, strong operational efficiencies at the same time as continued investment. And that's a philosophy now we're executing against that, and we'll continue to focus on that as we move forward.
Nicholas Basile: And sorry to make you clarify, but just when we're talking about operational efficiencies, should we be thinking more about product development side, sales and marketing or sort of equal mix of both or G&A? What sort of buckets are we seeing that benefit from?
Sukhinder Cassidy: Sure. So I think there are 2 things, this is Sukhinder, driving the operational efficiency. First of all, I think while it will show through in all those ratios. Number 1, I'd say headcount discipline, speaking frankly, like just being clear on the allocation of capital when we sort of -- when we think about fixed costs, our fixed cost base, we want to be clear that like when we add to our fixed cost base, that we believe it's adding in places that drive revenue leverage, right? So if we're going to add FTEs to product, we want to know that there's a clear line of return to building products that will -- that customers will value. So I'd say it's about being very kind of, I'd say, while we are -- we'll continue to grow our cost base, it's the allocation of our fixed cost dollars to the things that drive real value for customers. That is like a very clear way that we think about driving increases in our cost base. Number 2 is, it's very, very early days for AI internally, but I would say we are encouraging productivity usage by our employees to really get more work done through all of these tools and capabilities. And so I'd say we're really pleased, if you look at some of the numbers we reported. I would say Xero's adoption of AI, whether that's in P&T or sales and marketing, where they're creating more assets using AI or the average Xero who's using things like Gemini, and I'd say, improve their mastery of their work and save time. I'd say that is like -- it'd be hard to put a percentage on it, but I'd say that's another operational efficiency push we have here. And all those things drive through, we think, improved revenue per FTE, right? So that is a core metric that we use as a guide internally for like how are we creating operating leverage. So we want to come -- always come back to like what's the use of those efficiencies. For us, it's the ability to reinvest in the highest revenue growth opportunities and customer value opportunities. But that's sort of where the efficiencies are coming from, if you like that way.
Operator: The next question comes from Siraj Ahmed from Citigroup.
Siraj Ahmed: Can you hear me okay?
Sukhinder Cassidy: Yes, we can hear you fine.
Claire Bramley: Yes, yes.
Siraj Ahmed: First one on Melio. Sukhinder, just to comment on [Technical Difficulty] something that's slowing there from that whole rollout of CashFlow Central? And the second part on Melio, I mean, can you give us a view on annualized revenue at the end of the half, just to look at second half revenue and whether some of the CashFlow Central revenues is coming through in the second half, right?
Sukhinder Cassidy: So Siraj, you broke up for quite a while there. I think you were asking about CashFlow Central and Fiserv rollout. Is that correct?
Siraj Ahmed: Yes. So just -- sorry, my network is not great. Just in terms of -- you sort of said syndicate partners are not within your control, just wondering whether something slowed with Fiserv [Technical Difficulty]?
Sukhinder Cassidy: Because you're breaking up again, I'm going to take my best guess at answering this question. And obviously, we can follow up offline if we don't get it right here. I would say that we are -- we continue to be very excited about CashFlow Central and Fiserv, and so are they. I think if you look at even their own commentary on the importance of this product, it is in their encouragement of their own customers to roll out and adopt, it's quite strong. All I noted is its timing, right? On any partnership, it's always about the timing of those rollouts. So that was my point more on short-term noise. When somebody said, well, what are we waiting for? You could be waiting for a partner to deploy when it comes to within a half or within a quarter. That was my only commentary. But I think we continue to feel very excited about CashFlow Central, so does Fiserv, and I think they see it as a very important part of their stack.
Operator: The next question comes from Paul Mason from Evans & Partners.
Paul Mason: I had maybe a follow-on to Siraj's question there. Just are you able to provide any color on sort of how many banks Fiserv has been able to convert across so far was my follow-up. And then I was hoping you guys could comment a bit on thoughts around AI monetization, whether you've sort of settled on potentially using tiering or add-on or just embedding it in the core price over time as to how you monetize, that would be great.
Sukhinder Cassidy: Got it. Why don't I start with the AI question and we'll come back to the other. So I think on AI, I think what we've noted is we are not monetizing AI this year explicitly. I think we think the pricing model is still early. We're seeing others take a combination of approaches. Some are doing consumption-based, some are doing tiered. I don't think we have landed, Paul, yet on what model we will use this year. For us, it's all about rolling out those key features like auto bank rec and getting utilization. But I don't think we have landed on a model yet. I think we'll have to find, I think, the cornerstone between simplicity and also the opportunity to make sure that the model of pricing reflects the value delivered, and this is going to be the balance. So right now, I think on Fiserv, Fiserv has talked publicly. So I think what we can talk about is what they've talked about with 96 partners signed up since 2023 and 20 implementations underway. So those are Fiserv's own numbers, and that's all we're allowed to disclose.
Operator: The next question comes from Andrew Gillies from Macquarie.
Andrew Gillies: Can you hear me?
Sukhinder Cassidy: Yes, we can hear you.
Andrew Gillies: I was just hoping you could expand on the commentary on improving mix, particularly in the back book. You mentioned some traction on the front book. And I think in the deck, there was some commentary around more sophisticated sales motions. Like what are the opportunities there in the back book? And how can you address those?
Sukhinder Cassidy: Sure. Great question. So I think as we noted when we were at Investor Day, I don't know, about 18 months ago, the first thing we needed to do, and I think we've made good progress there, is get our sales teams to also be incented to drive value, not just volume. And the first moves have really been about improving the mix between PE and BE, business edition, in the front book, and we feel quite good about those. I think that the sales teams have made noticeable inroads. I think you can see it read through even in ARPU. You can see some mix shift in ARPU. And I think that -- and that's both a combination of our direct business as well as movements in the front book on the partner channel. I think the back book is a longer move because you've got only 4.5 million customers now. And so even if you move an increment to them, to move the entire ARPU stack is quite hard. And what you're really doing is learning new motions, and you're learning new motions with new features. So when we say it's more complex, we're giving our sales teams training on Syft. Syft just rolled out in all of our products. So now our sales teams are learning the different Syft features available at different levels of plans. And a reminder, then you need to go to your back book and figure out which of their customer cohorts are even eligible for the right candidate. So you're now looking at a combination -- I mean these are very specific motions, right, about sales teams knowing the products, but also cohorting your back book to even identify who's eligible for upgrade. So this is why we say it's a set of sophisticated motions. It's both data, it's orchestration, it's sales education, it's sales incentives. These are the kind -- and that's just on Syft, then you think about payments. In the U.S., you think about Melio. So when we say sophisticated motions in back book, we mean it's often a combination of segmentation, orchestration, digital marketing, physical marketing, sales training, sales education, sales incentives. Now you get hopefully, a picture of why we say the back book is a set of more sophisticated motions and orchestrations that unlocks over time. So I don't think you're going to see some dramatic one-half shift in ARPU, it's going to look more like steady motion and unlocking cohorts of customers who are eligible and the right targets for some of these products.
Andrew Gillies: Perfect. And then just a quick follow-up to that. I mean we've spoken about improving back book mix. But if I think about the significance of the Melio launch in December, you've got the Gusto beta going live soon. It seems like delivery is coming forward. The extent of churn to reduce as you get complementary software products being sold to the same customer. Like have you done any internal modeling on like the impacts to LTV or how you should think about the economics and how maybe we should start thinking about that?
Sukhinder Cassidy: We've done the modeling, yes. I think we -- this is what gives us comfort in providing the overall aspiration. If you recall, and I think you hit the nail on the head, when we think about Gusto plus payments plus accounting together in one stack, a, you have the opportunity to play from an ARPU. And in the U.S., which actually has the smallest back book, right, just by virtue of its size, you're playing as much to win the next customer as sell through the back book. And so yes, I mean, our ability and confidence to give the aspiration statements we did was built on revenue synergies in both better front book acquisition with more to play for on ARPU plus Melio stand-alone business, plus some penetration of the back book. But as we said before, in the U.S. specifically, it's probably far more of a front book opportunity just given the size of the back book is not that big.
Operator: The next question comes from Lucy Huang from UBS.
Lucy Huang: I've got 2 questions. Sorry, another one on Melio. You guys mentioned that Melio bill pay will be available from December 2025. And I think Andrew just mentioned Gusto integration is on the way as well with the beta version. How should we think about -- is there going to be a change in go-to-market strategy with Melio in the U.S. come end of this year? Should we think there'll be a bit more brand marketing to sell that there is extra functionality? Or are you still going to focus on performance marketing in the short term?
Sukhinder Cassidy: Sure. Well, first job, as you noted, is get that bill pay product and Gusto product out and we noted Gusto's beta. So our first job is like get customers on the product, make sure they're happy with it. That is the job of this year. As we think about the go-to-market motion, I think we have optionality on brands, but let's also just talk before we talk about the optionality on brand to talk about the integration of our GTM teams. One of the things we're excited about is we do have more sophisticated GTM motions than the Melio team. We have a bigger team. And I think part of the improvement in performance is our ability to obviously performance market, not just xero.com but also melio.com, improve the performance marketing there, and bring our muscles there. We have a very good performance marketing team, which alongside theirs, we think, can improve even exposure of performance marketing to their brand. Number 2, we've got our AB sales force also able to introduce Xero plus Melio, but also Melio. If the customer only wants Melio, that is another synergy opportunity. So I'd note, first and foremost, the integration opportunities in performance marketing and in the AB channel are not to be overlooked. Those are first yield opportunities. And then I think if you've looked at the OpEx guidance for this year, we're happy that we're able to realize more efficiency in the core because it gives us the optionality to think about what to do on brand, right? We talked a lot about that, hey, we'd like to be able to reinvest to growth areas. We've talked about brand being an opportunity for '27 that we're looking at. And I think if you put those 2 together, we're excited.
Lucy Huang: And then just one last one for me. I think you mentioned -- made a comment around having to include payroll into Australia into the lower end plans, and we saw a bit of spinning down from customers. Just wondering whether that is going to change? Or how are you thinking about product mix being a bigger driver of ARPU growth moving forward? Or should we see product mix being a more slower and steady contribution over the next few years compared to, say, the last 2?
Sukhinder Cassidy: Yes, it's a great question. So first of all, I think you were right to note the very deliberate decision to reinclude payroll and our lower plans. That was really a reflection of us taking in customer feedback and basically saying, okay, let's make sure we're doing what's right for the customer. So we reversed that decision. So that would have led this year, obviously, to a bit of pressure on ARPU in Australia as more people then went back to those plans. So that's kind of a short-term effect. I think the way to think about ARPU long term in Australia is, I'd say, very steady as she goes, when it comes to improving front book attach. But remember, Australia has a big back book. So this is a place where it will be very much those sophisticated motions we talked about across both Syft and payments in Australia, leading to sort of consistent, kind of steady ARPU improvement. And then, of course, every year, what we decide to do on price is a big factor in ARPU in any given year. This year, we made a very deliberate choice. In addition to adding payroll back, this year, we did not take up the price on our bottom-most SKUs in Australia. So that's pretty notable in this year's ARPU, right, for Australia. It did not include a price rise on the bottom 2 SKUs.
Lucy Huang: Yes. And so in terms of ARPU growth in Australia for this year without the bottom plan price rises, like where would the growth come from?
Sukhinder Cassidy: Yes, we did make -- as we said, ARPU is a factor of a mix of items in any given market. This year, ARPU would be a mix of the plans that did get price rises in Australia, front book and back book, any mix improvements. It would be a function of payments attach. Remember, we have a big invoicing business. where we are attaching payments also to invoice volume. And that business grew last year -- this year, it grew 30%. I don't have the numbers handy. Somebody remind me what it grew. It is more like...
Claire Bramley: 35%.
Sukhinder Cassidy: 35%, sorry, guys. I was just grappling with the numbers in the deck, among all the numbers we have. So remember, we also have payments attach of our invoicing payments in that number. So those are all the contributors that are -- and then we have currency effect, obviously, at the group level, also creating some ARPU movement.
Operator: The next question comes from Sriharsh Singh from Bank of America.
Sriharsh Singh: I've got 2 questions. One, can we -- just following up on Xero and Melio integration time lines. And wondering how long would it take you to integrate the Xero accounting solution into CashFlow Central product suite? And do you need a full integration on that to realize the real full benefits of cross-sell and syndication network? And just on that time line, I'm wondering if the CashFlow Central integration could happen faster than the Syft Analytics integration, which you've just done and rolled out? And second question, the latest round of pricing increases was really interesting. You kept pricing flat for the lower-end subscription plans. However, the higher-end plans have gone up by 11% to 15% in Australia at least. So should we expect more of that? And what do you need to grow with the higher-end customers? Do you need some M&A there? Or do you think you have a product which can allow you to grow with the top of the funnel customers?
Sukhinder Cassidy: Okay. I think there were 3 questions in there. So let me take them in hand. First of all, I want to take the Melio integration question. You might have noted in the half that Xero announced its first embedded accounting deal with Bluevine in the U.S. This is the first time we are embedding our accounting stack in someone else. And we talked on the Melio announcement about the opportunity to also, if appropriate, embed Xero in the Melio stack. Now keep in mind, that was, we said, upside to the plan. We didn't say that. We said that's something we're going to do, but we didn't factor into our numbers because we needed to figure out which of Melio's customers would want embedded accounting. Some of them might just want bill pay. Some of them might be happy to do a referral deal and some of them might want to have accounting in their stack. So we always talked about that as experimental and upside, and that's the same way we've talked about the Bluevine deal that we just announced. We're really excited to get it out and see what it does. But I would say we factored it into our financials. So that's -- I'd say, we'll see where that goes, and we're excited to innovate and try. Number 2, on Australia, as you said, you noted that we were more granular in our pricing moves. I think you can expect us to be more granular. At any point in time when we do pricing, I think we have moved in the last several years from like a one-size-fits-all price rise to very much by segment, by market, looking at the features we've launched our competitive placement in market, and we like that. I mean I think the customer deserves that granularity. So we made granular decisions and I think we feel like we always want to be looking at kind of a positioning range of different segments and SKUs in market against the alternatives and for the value we've delivered. And that leads to Point 3, which I think is about you noted that we did a double-digit price rise on our higher end. Look, when you look at the value we deliver at Xero compared to the size of that customer and willingness to pay and the type of features and delivery, I mean, think about the fact that we have now multiple levels of Syft functionality across our plans. I mean these are products that if you were to buy them stand-alone, would be expensive in their own right, a lot of the functionality that we're now incorporating into our higher-end plans. So I think willingness to pay always factors into how we price as well as the product feature delivery, which I think leads to your last point B, is there more to do in the higher end? Yes. I think there certainly is. We see customers who are on our top SKUs, and we have relatively low penetration of our top SKUs even in a place like Australia with a lot of room to deliver more features and functionality. They ask us for things like transaction limits or permissions or multi-entity reporting. By the way, multi-entity reporting is in within Syft, multi-entity consolidation. There's a long list of features that I think are still opportunities for Xero to go drive higher penetration in -- of those top higher-end customers and our higher-end SKUs.
Operator: Thank you. That does conclude the Q&A session. I'll hand the conference back to Sukhinder for closing remarks.
Sukhinder Cassidy: Of course. Thank you again to everyone who joined today's call. We appreciate the time and the support and of course, look forward to connecting again soon.
Operator: Thank you for joining the Xero Limited 2026 Interim Results Conference Call. If you have any further questions, please contact the Xero Investor Relations team. If you are a media representative, please reach out to the Xero's Corporate Communications team.