Ladies and gentlemen, welcome to Xero's Half Year Results FY 'nineteen Earnings Call. I must advise you that today's call is being recorded. There will be a presentation followed by a question and answer session. I will now hand the call over to your first speaker today, Mr. Steve Ramos, Chief Executive Officer.
Please go ahead.
Thank you very much. Well, hello, everyone, and thanks for joining us. I just want to let you know I'm joined by our Chief Financial Officer, Kirsty Godfrey Bille and our Chief Operating Officer, Seneca Narayan. We're really pleased to present an overview of our half year twenty nineteen financial results for 6 months ended 30 September 2018. Now as many of you may know, this is our last results announcement with Sancar.
Before he moves on from 0 at the end of the calendar year, I'd like to thank Sankar for his significant contribution to Xero and also congratulate him on his new role as CEO of SiteMinder effective January next year. I'll now walk you through some key business performance highlights, and I'll hand over to Kirsty to cover the financial results. And after that, we'll have a Q and A. During the first half of fiscal year 'nineteen, Xero continued to deliver strong growth with strong operational and financial discipline. At the same time, we made significant steps in executing our strategy and positioning Xero strongly for the longer term.
The slide you see in front of you, Slide 5, you'll see the trajectory of Xero's continued growth. We're seeing 380,000 subscribers join our small business platform over the past 12 months. This took subscriber numbers to just under 1,600,000 at 30 September 2018, a lift of 32% on the prior year compared to 351,000 subs added in the year to March 2018, and 337,000 subs added in the year to September 2017. This shows continuing strong momentum in our subscriber adds. On to Slide 6, which is a real highlight.
This chart shows that Xero's annualized monthly recurring revenue, which we call AMRR, has increased significantly to reach $589,000,000 a 40% increase over prior year. As I said, this is a highlight as AMRR demonstrates we're capturing more value from our existing subscribers plus adding more subscribers. Pleasingly in this result, we've been able to grow both subscriber numbers and the revenue from those subscribers, demonstrating our ability to boost revenue quality or ARPU as we grow the small business platform. The AMRR position is a great measure of how the business is traveling and provides some forward looking indication of top line revenue trends to come. Dollars 167,000,000 of AMRR was added over the last 12 months, up from $121,000,000 added in the 12 months to March 2018 and $116,000,000 added in the year to September 2017.
Moving on to Slide 7, where we've summarized key highlights for the period. These results provide further evidence of Xero's strong top line growth and disciplined execution demonstrated by strong financial metrics. We saw a 6% lift in ARPU. Operating revenue for the half increased 37 percent to reach $256,000,000 The EBITDA and operating cash flow result illustrate our ability to convert strong strategic positioning into improving financial outcomes. Excluding the impact of impairments, the EBITDA more than doubled to 34 $500,000 and operating cash flow is also up sharply increasing in the half, dollars 21,000,000 year on year to $36,000,000 On Slide 8, before we dive into the operating and financial detail, I want to highlight 3 key strategic priorities for Xero.
Driving cloud accounting. Xero is a great opportunity to keep growing internationally by continuing to do what we have over the past decade or so, which is really to drive cloud accounting. This remains at the center of what we do and will remain a core focus for us as we see current levels of adoption around the world at or around or well under 20% of market potential. At the heart of our business is the interaction and connection between advisers, which accountants and bookkeepers and small businesses. That interaction drives the way we think about our go to market approach and investments we make in product development.
That interaction ultimately leads to a strong word-of-mouth effect when advisors recommend Xero to each other and small businesses and small businesses do the same. We're making significant moves to ensure we're even better positioned to capitalize on the cloud accounting opportunity. We've moved our small business product team under Anna Curzon next to our partner product team to align our product development and marketing efforts further to capitalize on the cloud accounting opportunity around the world. Anna's new role is Chief Product and Partner Officer. An area of greater focus for us going forward is the opportunity to further unlock TAM in a number of different markets.
These include entry level and lower complexity businesses, more complex businesses and vertical or industry based segments and opportunities. Initiatives that better target what we view as highly attractive subsegments of the overall cloud accounting market is a key priority for us. Growing the small business platform. There's strong evidence in the results of our progress and potential in growing Xero as a small business platform, which means continuing to drive the financial web, building our app ecosystem and pursuing data services opportunities, which drive new transaction and other revenue streams. Converting the opportunity we have in front of us is a key clarity.
It's behind the appointment of Kerry Goeman, Chief Platform Business Officer, whilst Kerry continues to lead our business in the Americas. Kerry brings a strong understanding of our financial services, customer and partner needs and innovative thinking to this opportunity to enhance and extend Xero's product offering and business model. The US300 million dollars of capital raised with the issuance of the convertible notes in September enables us to pursue complementary acquisitions and investments such as the Hubdoc acquisition, extend our capabilities to meet a wider range of customer and partner needs and support our growth both in cloud accounting and with Xero as a small business platform. Finally, building for global scale and innovation, which means preparing ourselves for the future and making sure today we're doing the things that enable us to be the business with the people and technology platforms and capabilities we will need 1, 2, 3 years from now and beyond. During the half, we made the leadership role changes I referenced earlier, and we continue to acquire new talent to grow our capabilities in areas such as product management, technology, strategy and M and A, just to mention a few.
Slide 9 shows the Xero leadership team organization. Our leadership team and those reports are there continues to evolve and align with our strategic priorities. You'll also note the establishment of a CTO role with Mark Ruiz reporting to me, reflecting the importance of the continued development of our technology platforms and associated capabilities. Now I'll move to the performance of our business in each of the regions around the world. So on Slide 10, you'll see that we further extended our cloud accounting market leadership position in Australia and New Zealand.
We had a total of 981,000 subscribers at the end of September, up 24% versus the first half of last financial year. Making like for like comparisons with competitors is difficult given the differences between our business models. However, Google search trends, which we see as a high quality independent indicator of market dynamics, shows Xero's leadership of cloud accounting further extending in the period. The chart on the side shows search data for Australia. With the data for New Zealand showing an even stronger position, as you might expect.
In Australia, subscriber numbers were up 27% over the past year to $657,000 and the revenue performance in Australia was even stronger, up 33% year on year. Xero is also making important contribution to payroll in Australia. Today, there are over 1,000,000 people paid through Xero payroll in Australia. We see scope for further TAM penetration in coming periods with our rollout and support of single touch payroll. This is an ATO initiative that helps drive improved connectivity and automation we believe is beneficial for the penetration of 0 in the Australian market.
Consistent with previous indications, subscriber net adds has begun to level off in New Zealand with us adding 23,000 subs in a 6 month period. Importantly, though, growth in New Zealand subs and revenue remains solid, and AMRR points to strong future revenue momentum. Subs are up 20% year on year to $324,000 while revenue climbed 22%. AMRR, which was up 27 percent year on year, made even better progress driven by a focus on platform products and deeper customer relationships. The progress here is really pleasing and demonstrates that sub growth is not a limiting factor on revenue growth.
Slide 11 and moving to the UK. The UK business has again delivered a standout result with revenue climbing 56 percent year on year or 46% on a constant currency basis. Xero has a market leading position in the UK. Subscriber growth was up 40% from the same period last year with a subspace at September 2018 of 355,000. Google Trends data continues to indicate Xero's strong relative position versus others.
As I've already mentioned, we see great potential for new initiatives that help further accelerate penetration of TAM in Xero's key markets. In the U. K, we see these opportunities in both the present as well as the future scope of HMRC's Making Tax digital scheme, which affords us the opportunity to develop additional linkages to HMRC to support tax and compliance services that will drive further accounting partner adoption. We'll elaborate further on our strategy in front of 3,000 attendees at Xerocon London next week. We also see a great opportunity to serve businesses with lower complexity to drive penetration and businesses with advanced complexity to drive ARPU in the U.
K. Market. The headroom for growth in the UK is exciting. And with these initiatives, we aim to ensure that Xero is well positioned for continued strong subscriber growth and revenue expansion. Slide 12, and we talk about North America.
Headline subscriber numbers grew by 62% versus the same period last year to 178,000. The acquisition of Hubdoc helped, but without this, the sub numbers lifted 45%, driven by progress in the U. S. And good growth from the Canadian business. We continue to follow our partner focused playbook in the U.
S. Market and remain committed to building momentum in our channel capacity. Growth here is strong with 70% year on year growth in partner TAM. The U. S.
Remains attractive to us with significant TAM in a market that is still very underpenetrated. In the half, we added new financial services partnerships Citi and BBVA Compass. And as previously released into the market, we entered into a full service 50 state payroll solution partnership with Gusto, offering a more comprehensive payroll solution for a wider range of small businesses. Finally, on the North American business, I want to add how pleased we are with the great early progress we're having in Canada. We've had good engagement with the partner channel and a very successful round of roadshows.
Slide 13, we show our rest of world markets. Subscriber numbers grew 38% year on year to 65,000. Revenue up 55% year on year or 48% on a constant currency basis. The progress we've made in our Singapore, Hong Kong and South Africa businesses reflects the consistent application of our global playbook. In Singapore, Xero's positioning has been further boosted through our partnership announced with DBS, Singapore's largest bank.
Over 1,000 accountants and bookkeepers attended our Asia roadshows. We launched in Hong Kong in March, and we're optimistic about the potential in this market. And in South Africa, Xero's profile continues to grow. We appointed our 1st country manager in the half, and we're excited by the potential contribution this market can bring to the group. Slide 14 shows how our business is changing, and new revenue streams are emerging quickly.
While core accounting revenues are strong and growing close to the group revenue growth rate of 37%, Xero's other sources of revenue collectively grew faster. Platform revenue growth of almost 100% is a highlight. Platform and other non core accounting revenues have moved from 7% of our total revenue in FY 'eighteen to 9% this half. As we execute the small business platform strategy, this trend will continue with Xero's revenue composition shifting further and the group's growth profile continuing to benefit, which leads us to Slide 15, extending the small business platform. As we've discussed previously, we're focused on extending Xero as a platform for small business.
The acquisition of Hubdoc in August was an exciting step for us, delivering a key element in Xero's Code 3 accounting strategy and enabling small businesses and their advisors to focus less on paperwork and more on helping small businesses grow. The convertible note issue announced in September means we now have additional financial flexibility to pursue complementary acquisitions or investments. These acquisitions and investments will target applications and connections that drive extension and enhancement of Xero as a small business platform. Our investment criteria is clear about how these acquisition investments enhance lifetime value through higher ARPU, improved churn, retention or acceleration of subscriber net adds. On Slide 16, the final slide in my presentation, it's going to give you a picture of how we are looking at Xero from a business, a product and a platform perspective.
This framework points to a number of important things. At the core, we recognize 2 often connected customer groups that we serve. Around the core is the Xero system of record at the heart of our cloud accounting heritage. Around that are applications Xero provides like bank feeds, payroll, projects and expenses. The next wing of the wheel are solutions like the Gusto partnership, where we partner to build a more integrated solution that we take to market.
I expect we'll do similar partnerships as we take solutions to market that range at specific segments of small business or at accountants and bookkeepers. The final ring of the circle are applications provided by our 700 plus ecosystem app partners that customers can select from to meet their specific needs. Internally, a much more detailed version of this picture, which segments the SERC on the application areas and needs of our customers with more granular associated TAM and value pools to inform our build, our partner and our buy decisions. We'll then look to pursue those applications and the connections on the platform they enable, which add the most value to our customers and to our business. On that note, I'll finish by saying that H1 FY 'nineteen demonstrated strong continued growth and operational discipline.
At the same time, Xero made significant progress in taking the actions we need to continue to position us well to execute our strategy. I'll now hand over to Kirsty, our CFO, to take you through the financial results.
Thanks, Steve. It's great to be here, and thanks to everyone who's joined the call. Today, I'll cover Xero's financial performance for the half, which is showing continued strong growth and further evidence of Xero's disciplined approach to its operations and finances. Moving to Slide 18, contribution margins. The progress in both Australia and New Zealand and international segments for the period is something we're very proud of, and we think points to the long term economics of our business model.
The Australia and New Zealand contribution climbed 39% year on year to reach $98,000,000 this half. This outpaced revenue growth of 30% as efficiencies and operating leverage continues to emerge. We've continued to invest in geographic expansion, supporting our newest offices in Canada, Hong Kong and South Africa. This effort has helped to drive revenue growth of 52% within our combined international businesses, but this has come alongside substantial improvement in investment loss, which came in at under $1,000,000 Moving to Slide 19, a great half year result. We've delivered again on top line and bottom line metrics.
We've achieved a 40% year on year increase in annualized monthly recurring revenue, while at the same time reducing cash outflow, excluding the acquisition cost of Hubdoc, to just 4% as a percentage of operating revenues. These are really important trends as Xero increases its global scale. AMRR growth of 40 percent is higher than subscriber growth of 32%, showing the quality of growth achieved in the period and supporting further lifetime value expansion. The trajectory of cash outflows over recent periods shows the progress made towards our commitment to manage the business to cash flow breakeven. On Slide 20, we show how the lifetime value has expanded over the last 12 months.
We are very pleased and focused on this metric. It is a great holistic indicator of the business' execution. LCD per subscriber climbed 8% in the period, driven by a lift in both ARPU and gross margin, while churn trends were consistent versus March 2018. This shows we're driving growth in a disciplined fashion and ensures we are adding subscribers that add value to the overall performance of the business. Total lifetime value added increased by more than $1,100,000,000 over the 12 months to September.
And as a reminder, this is a measure of value created in the period that is not captured elsewhere in our financial statements. Moving to Slide 21. Here we have our high level financial performance measures showing the year on year improvement between H1 2018 and H1 2019. Xero delivered strong operating revenue of $257,000,000 up 37% from the same period last year. This was driven by subscriber growth in all markets and increased ARPU which lifted by 6%.
As Steve already mentioned, revenue growth was boosted by a 96% year on year lift and platform revenues. Alongside the strong revenue result, we saw further progress in gross margin, which lifted 3 percentage points to 83%. EBITDA on a reported basis was $16,800,000 or 7% improvement on the prior year. Perhaps a better reflection of the progress delivered in the period is the improvement in EBITDA excluding share based payments and impairments rising 91% year to date to $49,000,000 The strategic partnership with Gusto improves the product market fit in the U. S.
It also enables us to reallocate product development resources and to optimize our capital allocation going forward to enhance our global competitive positioning. Whilst we expect benefits in the future, we took an impairment, which is included within the net loss. This was in addition to the cost related to the Hubdoc acquisition, higher finance costs due to lending arrangements entered into in the period and accounting policy changes. I'll run through the key elements of our financial performance in the following slides. But as a reminder, we adopted 3 accounting standards on the 1st April and comparative results have been restated.
Overall, the impact of the 3 standards on our restated H1 FY 2018 net loss was a modest improvement of $1,500,000 Our restated H1 FY 2018 EBITDA was boosted by just over $10,000,000 The impact was split fairly evenly across the deferral of commission costs under IFRS 15 and the improvement of operating lease costs under IFRS 16. We also adopted IFRS 9, but the impact of this change was much smaller. The key thing to note is that these three disclosure changes do not impact our business, our operating performance or our strategy. We've provided more detail on the changes and their impact on the restated H1 FY 'eighteen figures in the appendix to this presentation and also in the interim report. Starting with gross margin on Slide 22, Xero has delivered an improved gross margin of 83% for the half, up 3 percentage points from the prior year.
We've been able to achieve continued efficiency driven improvements through economies of scale and hosting costs and automation within Xero's customer service platform. We expect these benefits to continue to flow through the business in coming periods. Moving to Slide 23 and EBITDA. After last year's breakthrough EBITDA results, we have delivered further momentum in H1 FY 2019. Reported EBITDA was affected by impairments due to our new strategic partnership with Gusto in the U.
S. And also costs relating to the Hubdoc acquisition. Gusto related impairment costs recognized in the period of $16,300,000 related to seeking development of our in house U. S. Payroll product.
Excluding both share based payments and the impairment costs, EBITDA improved by 23,000,000 to $49,300,000 year on year. On Slide 24, continuing on our theme of disciplined execution, we are becoming more efficient as shown with bottom line performance. We continue to allocate additional investments, but as the first chart shows, product costs, both including OpEx and CapEx as a percentage of revenue, reduced to 30% in this half, down from 35% in H1 FY 2018. There's also a similar story when we look at our sales and marketing costs. CAC or customer acquisition costs have also improved by 3% to 45% when expressed as a percentage of revenue.
We expect these trends to continue in future periods as the business continues to scale. Although we see this improvement efficiency, in dollar terms, the CAF II gross adds has increased within the period from $3.63 to $402 This was due to the impact of FX and also the investment in the U. K, Canada and other new markets. Slide 25. This is a key highlight of the results, showing the strengthening of the operating leverage and discipline while driving top line growth.
Operating cash flow for the half was $36,000,000 That's a full further marked improvement of $20,900,000 from the $15,100,000 for the same period last year. As you can see from the chart, the last few H1 performances demonstrate very healthy dynamics within the business. The total operating and investing outflow for the half was $40,100,000 Excluding the Hubdoc acquisition, total operating and investing outflow was $9,800,000 a significant reduction from the $30,900,000 outflow seen in the prior year period. On Slide 26, we summarize the high level drivers behind our recent US300 $1,000,000 convertible notes issue. We are very happy with the reception the notes that you received from the market following an extensive pre deal marketing campaign.
When considering how best to raise capital earlier this year, we evaluated a few options. But like a number of U. S.-based tech companies, we saw a combination of convertible note and call spreads at striking the right balance between the cost of funds raised and potential for dilution of existing shareholders. The transaction was a first for a New Zealand or Australian company not listed in the U. S.
With the core spread protection in place, we have extended the effective conversion premium on the notes by 40% to 70%, minimizing dilution of existing shareholders and expressing confidence in Xero's growth outlook and operating discipline. As Steve has flagged, we intend to use the net proceeds raised for complementary acquisitions and investments that will help to power our small business platform strategy. We've repaid $31,000,000 in bank loans drawn at the time of the Hubdoc acquisition and invested the remainder of the proceeds raised in liquid investments and cash. We have retained our existing undrawn $100,000,000 standby facility and we have a capital structure that is optimized for the group's strategic and financial needs going forward. With that, I'll hand back to Steve to comment on our outlook before Q and A.
Thank you. Thanks, Kirsty. Slide 28, the outlook. I won't read the outlook, but it's absolutely consistent with what we've previously communicated. So to conclude, great results, really continue to demonstrate strong growth and operational excellence.
Finally, I'd really like to just say how proud I am of the team at Xero delivering such a strong performance over the half. We really appreciate the hard work of our team around the world. So on that note, thank you. I'll hand back to the moderator so that we can take your questions.
Thank you. Ladies and gentlemen, we'll now begin the question and answer session. Thank you. Our first questionnaire is from Sameer Chopra from Merrill Lynch. Please ask your question.
Good morning. Congratulations on the strong results. I had two questions. 1, Steve, just in terms of the UK and the United States, what are you seeing in market dynamics over there? Also in terms of what you're seeing in terms of pricing in the market and kind of share shifts in the market.
My second question is just around the cost of acquisition dollar growth. How should we think about this on a going forward basis? Do you think you'll keep a similar level of dollar growth? And if you're hiring, which kind of sector of countries are you hiring?
Okay. Thanks, Sameer. Thanks for your questions. I'll take the first, and I'll let Kirsty comment on the second. U.
K, obviously, we're extraordinarily pleased with the progress. We see that the focus we've had on executing our playbook around partner focus and really targeting the quality business is really, really delivering a great return. We also, as I said in my remarks, see great opportunities going forward, both to leverage the HMRC connections in the market to bring more and more small businesses on board and the opportunities we have to serve organizations with less complex needs and more complex needs. So we're very acutely aware of the opportunity, the TAM in the U. K.
And very focused on progressing and continuing to grow our business there. So very, very pleased. On the U. S, as you know, 1.5 years ago, we reoriented our business towards the approach that has worked for us elsewhere. We make good progress in building the partner connections and channel and the TAM associated with that.
We also continue to build the basic elements of our business around Financial Web and connections to banks and also extend and improve product market fit. So with those things in train, we see a good foundation for our business going forward, and we're very optimistic about the business. But at this stage, we're still really progressing the development of our business and look forward to continued growth.
Just a quick quickly follow-up. In the say in the U. K, are you seeing competitive intensity is dialing up or dialing kind of down over the last 6 months or so?
Look, I would say that the opportunity is significant and penetration rates are still quite low. So that means that there's great potential for us to continue to grow our business. And if you look at the Google trends, people are talking about Xero, and Xero is being referred from partner to partner, customer to customer. So look, at this stage, I don't see that as being a major obstacle to our continued growth.
If I just pick up your second question, Samir, just around the sales components to that. So one is, as I mentioned, the impact of FX, which is it does have an impact on increasing our cost base for this half. We also had one additional 0 con in this half, which is not therefore showing a true sort of like for like comparison. But as you point out, we are investing in new markets as well as ensuring that we're doing the right level of investment in our core markets. So we have recently pushed into Asia.
We are continuing investment via Canada, Newmarket, South Africa. And as you were just asking around new offices, we have actually just recently opened a new office in Hong Kong to further expand our Asian footprint.
And our next question there is from Stefan Ridgewell from Craig Investments. Please ask your
question. Just on the platform revenue growth, which was a good number again in the 90% range in the first half. Could you just please call out which products were driving the lion's share of that growth? And perhaps comment on which products you see with good momentum going into the second half and beyond?
So if I just pick that one up. So in platform revenues, what it does include is it includes payroll. We've also recently had the expenses and projects, our Finweb revenue and also the new addition to it is Hubdoc. Now Hubdoc, as we do have within our financial statements, the revenue is relatively small because it only included sort of less than 2 months. So it's sitting at 1,200,000 dollars for the half.
But I suppose going forward, this is really our growth our exciting growth area, and that's why we want to be able to show you that we are continuing that really good traction of just under 100% year on year growth within that platform revenue.
Okay. And then I
guess if you look on an organic basis in going to second half with the product sets that from memory payments and also U. K. Payroll were quite strong last year. Is momentum in those products continuing? Are we seeing any momentum in the expenses and projects?
Yes. Absolutely.
And that's really that has been a key driver. As I said, Hudcock is only actually sort of 1.5 to 2 months of the revenue. So therefore, it is the momentum on all of those other areas. Fin with projects, expenses really starting to get some traction. That is really where our growth area is.
Okay. And maybe just on North America. Slightly, you should compare it, but just given that Hubdoc evolution there was only a couple of months. But back of the envelope, it looks like there was a subscriber growth did pick up, but revenue growth and revenue growth did pick up a little bit as well compared to first half last year in absolute terms, but it wasn't a significant acceleration. It looks like ARPU was down a bit.
Are you able to just talk about the relative performance of Canada and the U. S? Stephen, you sort of alluded to a good early start in Canada. I mean, how much of that growth was coming from Canada? And are you able to touch on Pip's pricing strategy in that market?
Yes. Look, Stu, it's good question. I think fundamentally what's happening in the U. S. Is we continue to reorient the business, and that sort of flows through in the numbers towards partner orientation.
So that's why you see, in a sense, higher subs growth than you do revenue growth. In terms of Canada versus the U. S, it's too early for us to be breaking that out. But Canada is still an early stage for us, but we're really encouraged by it. It's a market that really does suit 0.
It has only the conditions that we need that have also helped us in other markets. So we're encouraged by both, and we've got teams now set up in both markets driving our business. But the overall view is the way I like to look at the U. S. Business, we continue to build the foundations, drive the reorientation of the business, invest in the communities that we think are the right ones to pursue, and we're patient.
Okay. And maybe if I just have one last one. I'm just following up on some of the questionings KIK in the U. K. And I think it's pretty expected that as you're at earlier stage in some of the newer markets that kick is going to go up.
I suppose if we were to look at the market like the U. K. Though, where it has been in for a while, I mean, where do you where should we be thinking about kicking a market like the U. K? And are you going through an elevated period of investment currently in that market and perhaps that might boil down going forward?
How should we be thinking about you can't particularly, but broadly CEC over the next 12 months?
Yes. So I suppose if I'd sort of turn your attention to the contribution slide that we went through on Slide 18, across the if we focus on the international segment, what we are doing is we're seeing that year on year improvement in the contribution. So the contribution leases is shrinking quite substantially. So therefore, that's showing that the revenue is going up at a higher rate than the cat cost. But obviously, still wanting to do the right level of investment because we do see it as such a great opportunity market.
The next telephone question is from Roger Samuel from CLSA. Please ask your question, Roger.
Hi, good morning guys. I've got 2 questions. First one is just on your ARPU. So I noticed there's an uptick in the ARPU in this half. I'm just wondering what's the primary drivers of that.
Is it price increases? Because I thought you only put through price increases at the end of September this year. So shouldn't be shouldn't have a lot of impact there. Or perhaps all the new products And perhaps the subset of that question is, how do you treat Hubdoc? Is it part of your book calculation as well?
The second question I've got is on the accounting changes and the impact from IFRS 15. I just want to clarify the impact on the commission because I thought that you net off the commission at the revenue line, so there shouldn't be any benefit on the cost line because of the changes. Thank you.
Okay. So Roger, I'll take your first point on ARPU and then carry on with the accounting policy change. So if we just look at ARPU and sort of break it down between ANZ and international and particularly the U. K. So as you pointed out, within Australia and New Zealand, we did have a price increase, which has assisted us with our growth in ARPU across the AMZ market.
Now this did come into play right at the very end of the half. So it means that it doesn't impact our revenue, but it does actually impact ARPU because it's calculated at the very last day of the period. As you also point out, we have also seen traction with our expenses and projects and payroll. So that does have a positive impact on ARPU, too. Now the really pleasing result within the well, one of the very pleasing results within the U.
K. Was actually that we had organic ARPU growth. So no price increases whatsoever, but because of us focusing so much on quality, which you can see within the revenue and increase in MRR into the future, ARPU increased organically, so really pleasing with the ARPU growth there. We've spoken around the U. S.
So as we drive into the partner, that does have a slight impact. So we've sort of pretty much flatlined across there. From an ARPU perspective, yes, pricing does have a small impact, but also we are starting to really see that play on the platform growth. Your question related to HubGox and whether or not that has an impact on ARPU, it actually has a neutral impact because the ARPU is very similar to what we had previously. So it is included but has had no real impact.
Now going to your second part of the question, which was around the accounting policy changes, the it doesn't really have an impact on revenue. As you're aware, we do have majority mostly monthly contracts, so it doesn't there. Now what it does have though is within our cat costs, and this is why we've made the restatement both for last half year H1, FY 2018 and FY 2019, it has moved commission costs into the balance sheet. So effectively, it's being spread across the a potential lifetime of that particular contract. But there are some pretty in-depth information around the accounting policy changes, which you can see in the interim report.
But just it is only the internal staff sales commission costs that are being spread, but it does have an impact. We've actually showed at the back of the investor debt to just the impact of the different efforts on last year, which gives you a good indication of the impact this year, but it is a like for like comparison therefore.
Okay, got it. Thank you.
Thanks, Roger.
Our next question is from Tom Beadle from UBS. Please ask your question, Tom.
Hey, guys. Thanks for the questions. I just had 3, if that's okay. Just, firstly on the U. K, it looks like it was a good result there.
But on your sub number, it was probably a bit below what I'd expected just when you're looking at some of the forward indicators like Google Trends. It also looks like Intuit's growing a bit faster than you in the U. K. So just wondering what might explain the difference versus Intuit. Just secondly, on the U.
S, the U. S. Numbers look like their subscriber numbers look like they're tracking a bit better than history, even once you adjust for Hubdoc. But so they're obviously going the right way, but not materially accelerating in the context of the market size and obviously what Intuit's doing as well. So if you want growth to accelerate, what do you think needs to be done?
I realize you've got the partner strategy in place, but you think that SMEs in the U. S. Have the same strength of relationship with their accountants as in, say, other markets? And then just finally, could you confirm that your revenue and EBITDA guidance that you gave at your convertible notes offer still stands?
Okay. Why don't we start with that last question with Kirsty, and then I'll take on to answer the question about the U. S. And then finish with the U. K.
So Kirsty, over to you.
So I would like to it's going to be a quick one. I would like to confirm that, that is the case.
Yes. So Tom, on the U. S, the read orientation of that business, this is it is something that does take time. So we have to make sure that all the conditions that really have driven success elsewhere exist in the U. S.
Market. We're making good progress. I think the numbers sort of reflect that we're certainly in there with a business that is worth investing in, and we'll just have to take the time. We're just patient about that. And I think it's still going to take us a little bit more time to get to the place that I think we're all hoping to get to.
So it is about making sure we do have the partner TAM, making sure we do have the better connection to the banks, making sure we do have the local product fit that, for example, Gusto helped us with. On the U. K, excellent result for us in the U. K. I did say in my remarks straight upfront that we do see opportunities to extend 0 into organizations with less complex needs and those with more.
We also think that there's real opportunities as well in the connection with HMRC and the developments in the U. K. Market to accelerate. The continuum between subs and revenue is one that's continuous in our business market to market. And our leadership teams quarter to quarter look at what their objectives are and adjust accordingly.
And we're very comfortable about the opportunities there. And our position relative to competition is one that gives us confidence. We have great growth opportunity ahead.
And our next question is from Tristan Joel from FNZC. Please ask your question.
Good morning. I don't have too many left actually. Just on the sales and marketing costs, just the LTV to CAC, we've talked about a few ratios, but that ratio went from 6.4 to 6.2. I guess you've explained the CAG side of it reasonably well. Do you think that it will stay there?
Or do you think we could expect that to expand? And in a similar vein, is the sales and marketing growth that we saw in this half year on year, which I think was sort of high 20s? Is that something we could take as a guide to the year ahead or the rest of
the year? So just on the LTV to CAG, I think something that we're sort of we're not fully we're not giving the detail within it. But what happens is that there's actually it becomes a blended particularly across the international segment. So if you're comparing, say, the U. K.
To Canada, where we are putting a lot more investment upfront, you are sort of looking at that blending. So it's we're comfortable with the position that we sit at the moment. And these are good numbers, just I suppose, 1, showing the level of investment that we're putting into new markets, but then 2, showing the efficiency within our ANZ segment.
Well, I suppose as a follow on to that, looking at the segment disclosure, ANZ went from 12.2% to 11.5%. So how do you sort of characterize that? Is it what's going to improve that? Is it going to be lower cat going forward? Or is it going to be an acceleration of ALTV?
Yes. So I suppose I'll give you a bit on that. But what happens is, I suppose within our cat costs, we have both the cat of new business plus also our existing customer base. So therefore, as we get into more mature our markets get into more mature phases, we will start to level at a particular LTV to CAC.
Okay. And then just one other question really, which is a sort of strategic one. Steve, you sort of explained quite well at Xerocon how Hubdoc fitted into the vision. I guess when you look forward and you think about these resources that you've got to deploy, are there other things that look like Hubdoc which are kind of core to the accounting mission, is one question. And then secondly, when we think about what you might be looking at, is it mostly technological stuff, things that add to the technology of the platform?
Or would you be open to buying things that take you into other geographies or expand your presence in a geography?
That's a great question. I did touch on the strategic priorities, and I think they do lay out a framework. And when we look at acquisitions, what boxes do they tick? You look at Hubdoc. It helps us in cloud accounting.
It helps us extend the platform. It also brings us capabilities, technology and people in a market that's very attractive to us, being in Canada. So it really stood up nicely. So we'll look at the various opportunities we have against that strategic framework as well as obviously the financial returns that we expect to get so or desire. So that's probably the best way.
The final slide I showed, which sort of gave you the picture of how we're looking at 0 from a customer view client, a core cloud accounting viewpoint and then extensions into apps and services. It doesn't tell you a lot, but give you an indication of what we'll do is really and we are doing is getting a really good picture of what are the different applications and services we can add to Xero to create the best value for our customers and also to us. So it's a combination of those two things that we'll look at. We'll look at the big picture of our strategy, and we'll also look at the specific application areas and pursue those we think will have the most impact.
That's great. Thanks very much for taking my questions. Thank you.
And the next question is from Avinash from Macquarie. Please ask your question, Avinash.
Hi, guys. Just a question on the strategy to unlock a bit more TAM in those entry level customer base. Can you just provide a bit more color around that?
Not at this stage. I'm not going to give you more color on that other than to say that we do appreciate the opportunity. And in the future, it sort of sits now in the frame of our thinking.
And next question is from Paul Mason from Evans and Partners. Please ask your question, Paul.
Hi, guys. My question is sort of an extension of Allen Ash's. One of your big competitors has obviously gone really hard with the self employed product that's pitched at a really quite thin ARPU level, at least initially, and seems to have like a little bit of a sub segment to itself for the time being. I'm just curious on your thoughts about that product and whether it's worthwhile you guys developing something in copycat or that potentially exceeds it, obviously. If you could maybe talk around that.
Well, I think I've said as much as I would want to say at this point in time. I genuinely believe that in every market we're in, we're focused on really extending the elements to our business have worked very well for us in the past and underpinned the quality of revenue growth that we are seeing. We can see the opportunity to unlock TAM, and we will obviously pursue that in time.
And the final question for today is from Gareth James from Morningstar.
Gareth. I was just going to clarify something regarding the Rest of the World segment. Are you able to clarify where the growth is coming from, if there's any areas in particular? And also why the ARPU seems relatively high in comparison to other regions?
Look, with the growth in the Rest of the World regions is consistently across all those all regions. So it's not I mentioned Hong Kong, Singapore, South Africa. They all are showing good growth. On the ARPU have you got Steph?
Yes. So with rest of world, because this caters for not only just the areas that we're in but also where we don't fit, those are all direct. So therefore, they have a higher ARPU.
So just to sort of add to that, essentially, what we're saying is that we're developing the partner channel in these markets, and that's, in a sense, a critical part of growing those markets. In the meantime, there are people in those markets buying directly from us. So that means that the blended ARPU is higher.
So yes, because ZERO is in over 180 countries around the globe. So all of those that we don't have a presence are direct customers, which therefore have the direct offer associated with them.
There is no further questions at this time. I'd like to hand the call back to the speakers for any closing remarks. Please continue.
Well, look, thank you, everyone, for attending today. Obviously, we're excited about the results. They do show continued growth and definitely the fact that we are driving growth with great operational discipline. Really appreciate your interest in Xero, and thank you again for attending.
Ladies and gentlemen, that does conclude the call for today. Thank you for participating. You may all disconnect. Goodbye.