Xero Limited reported a robust first half of FY26 with 20% revenue growth and strong cash generation, driven by sustained momentum across its core markets and the strategic Melio acquisition expanding its US footprint.
- 20% year-on-year revenue growth to NZ$1.19 billion
- Adjusted EBITDA up 12% to NZ$351 million
- Melio acquisition completed, boosting US revenue by 53%
- Rule of 40 score improves to 44.5%, indicating strong balance of growth and profitability
- Strategic investments in AI, payroll, and payments to enhance platform capabilities
Strong Financial Momentum Across Core Markets
Xero Limited has delivered a compelling set of interim results for the first half of FY26, reporting a 20% increase in operating revenue to NZ$1.19 billion. This growth was broad-based, with the Australia-New Zealand (ANZ) region contributing NZ$664 million, up 17%, and international markets, including the United Kingdom and North America, showing even stronger gains. Subscriber numbers rose to 4.59 million globally, reflecting steady adoption of Xero’s cloud-based accounting, payroll, and payments platform.
The company’s adjusted EBITDA climbed 12% to NZ$351 million, underscoring operational leverage despite ongoing investments. Xero’s Rule of 40 metric, a key SaaS benchmark combining revenue growth and free cash flow margin, improved to 44.5%, signaling a healthy balance between growth and profitability.
Melio Acquisition Fuels US Expansion
A major highlight was the completion of the Melio acquisition in October 2025, which significantly expanded Xero’s US presence. On a pro forma basis, combining Xero and Melio, US revenue surged 53% year-on-year to NZ$241 million, with Melio’s payment platform complementing Xero’s accounting software to address a large and growing US small business market. Melio’s integration is expected to accelerate bill pay capabilities within Xero’s platform, with a US launch planned for December 2025.
While acquisition-related costs impacted operating income, excluding these expenses, Xero’s operating income actually increased 6%, reflecting underlying business strength. The company’s balance sheet remains robust, with a net cash position of NZ$3.2 billion pre-Melio and a manageable pro forma net debt of NZ$0.5 billion post-acquisition, preserving financial flexibility for future growth.
Strategic Focus on AI and Platform Enhancements
Xero continues to invest selectively in product innovation and go-to-market strategies. The company is rolling out advanced AI capabilities through its JAX platform, including integrated generative AI powered by OpenAI, aimed at automating routine tasks and delivering actionable financial insights. Enhancements to payroll flexibility, particularly in the UK and New Zealand, and the launch of new analytics features via Syft are designed to improve customer value and drive average revenue per user (ARPU), which increased 15% year-on-year to NZ$49.63.
These initiatives align with Xero’s strategic '3x3' focus on completing critical jobs to be done in accounting, payroll, and payments across its three largest markets. The company’s disciplined capital allocation approach balances organic growth with strategic acquisitions, positioning it well for sustained expansion.
Looking Ahead – Ambitions for FY28 and Beyond
Looking forward, Xero expects to more than double its FY25 group revenue by FY28, driven by the combined strength of its core platform and Melio’s US scale. The company aims to deliver Rule of 40 outcomes above 40% by FY28, reflecting continued revenue growth and improving free cash flow margins. While near-term results will incorporate integration costs and amortisation expenses related to Melio, the long-term outlook remains positive, supported by strong market fundamentals and ongoing innovation.
Investors will be watching closely how Xero leverages AI and payments integration to deepen customer engagement and expand its footprint in competitive markets.
Bottom Line?
Xero’s H1 FY26 results and Melio acquisition set the stage for accelerated US growth and sustained global momentum.
Questions in the middle?
- How quickly will Melio’s bill pay integration drive new customer adoption in the US?
- What impact will AI-powered features have on customer retention and ARPU growth?
- How will Xero balance investment in growth with maintaining strong free cash flow margins?