Good morning from Auckland, or maybe I should say kia ora from New Zealand, and welcome to Xero's 2026 annual meeting. My name's David Thodey and I'm Chair of Xero's board. Let me begin by thanking you for attending today's meeting. We're broadcasting from our Auckland office, and let me go through the procedures. The procedures for today's virtual meeting are intended to provide you the same opportunity to participate as you would at a physical meeting. This includes asking questions and voting using an electronic voting card. I'll be discussing this process shortly. In the unlikely event that we experience any technical issues that impact the meeting, I'll assess the circumstances and communicate further with you. If this isn't possible, you will be emailed instructions on how and when to rejoin the meeting.
I think I'm informed by the Company Secretary that a quorum is present, and I now declare the meeting formally open. I'd like to start by introducing the board and members of Xero's leadership team. Joining me from Auckland is Susan Peterson. From Xero's executive leadership team, our Company Secretary, Damien Coleman . Joining us from our San Mateo office are our Chief Executive Officer, Sukhinder Singh Cassidy, and our Chief Financial Officer, Claire Bramley, and our Director, Anjali Joshi. We also have a number of people joining us online. From New Zealand is Mark Cross, who's unfortunately unwell. Morning, Mark. He's not speaking. Because we are a global board, we also have a number of people joining from the U.S., our Directors Steven Aldrich, Brian McAndrews, and from the U.K., a little bit later in the night, Dale Murray.
John Robinson, from our auditor Ernst & Young, is present and available in the room here to answer any relevant questions directed to him. Also we have Xero's General Manager, Global and Regional Communications, Simon Fitzgerald, who will read out written questions submitted by shareholders throughout the online meeting platform. Let me now turn to the agenda and the order of events for today. Firstly, I'm going to say just a few words, and then we will hear from our CEO, Sukhinder, and then we will turn to the formal business of the meeting, as set out in the notice of meeting, where questions for each item of business will be addressed. After that, there will be an opportunity for any general shareholder questions before I close the meeting.
Before I give my address, I do want to outline a little bit more about using this online platform. Voting on the resolutions will be conducted by poll, and that poll is now open. Please vote by using the electronic voting card you should receive after clicking the Get A Voting Card button. Shareholders can submit written questions during the meeting by clicking Ask a Question button. I encourage you to submit any questions as soon as possible, including questions about any of the resolutions. Shareholders also can ask questions by telephone. To use the teleconference facility, shareholders should click the Go to Web Phone button, type in your name and click the green Call button. If you wish to ask a question, dial star one on your keypad to indicate to the moderator that you wish to ask a question.
The teleconference moderator will require your name, and at the relevant time, will introduce you and prompt you to ask your question by unmuting your line. Now if you have any issues, please refer to the virtual meeting online guide, which you can access through the download section at the bottom of your screen, or from Xero's website, or contact the phone helpline shown on this slide. Now to ensure questions reach us in time, I do ask that you submit them as soon as you can if you haven't already done so. Any general shareholder questions submitted prior to or during the meeting will be addressed after the formal business is completed. I think that covers all the administration consideration for today. Now let me move to my address. Well, 2026 has been another year of significant change globally. AI has been on everyone's lips.
A broad rerating of software sector valuations and ongoing geopolitical uncertainty have all shaped the environment in which we, and of course our customers operate. Against this backdrop, Xero has delivered strong operating and financial performance. While we're disappointed with our share price performance over the past year and acknowledge the pain felt by our shareholders, the business is performing well. We've seen this broad rerating of SaaS valuations globally alongside a desire for the market to see the financial returns from our Melio investment play out, and this has put downward pressure on our share price this year. While neither the board nor management can directly influence how investors value sectors, what we can do is execute on our strategy. The board is confident and committed to our current strategic direction that provides Xero with a large and expanding opportunity.
We believe AI will be a positive for this company, not a negative. Growing internationally with a focus on the U.S., the U.K., Australia, and New Zealand gives Xero a large addressable market. While we continue to expand our product offering beyond accounting into payments and payroll, an exciting future. This has been our strategy for the last three years, and of course, accounting, payroll, and payments are so fundamental to every small business. Our continued investment in the U.S. through the Melio acquisition absolutely reflects this commitment, the 3x3 strategy. It is aligned with this strategy. We continue to build our strong global executive team, our global operating model, and a global people strategy, and a remuneration structure that reflects the caliber of people required to compete in these markets.
Sukhinder is going to speak to our results shortly, but I just want to touch on a few brief highlights. Execution against our 2025 - 2027 strategy has been encouraging, and our financial performance reflects strong demand for our products and services. Customer centricity remains absolutely vital as we continue to focus on our core product features along AI innovation reflected through the strong satisfaction and the deep relationship that we are enjoying with our partners. This was very apparent at Xerocon in London and just recently in Denver. The U.S. Xerocon, held just last week in Denver, reminds us of the importance of small businesses to the economy globally. We see this in our Xero Small Business Insights series, which shows the underlying strength of small businesses around the world despite the geopolitical uncertainty.
These insights, using anonymized data from more than 1 million small businesses across five countries, they help us understand and also to advocate on behalf of the small business economy. We remain impressed by the resilience of small businesses navigating this complex environment, and very proud of Xero's role in supporting them. That resilience reminds us why our purpose, to make life better for people in small businesses, their advisors, communities around the world, matters as much today as it ever has. We are pleased with our progress adopting AI to power both customer value and operational excellence, and Sukhinder will talk more about that. Xero is delivering as the trusted financial operating system for the AI era so that we can meet our purpose of helping small businesses. That is what we do, while remaining committed to our obligations around security and data integrity.
Delivering on this strategy is only possible because of the quality and commitment of our people at Xero. We remain committed to incentivizing and retaining our key people, and we have engaged extensively with our shareholders on our remuneration approach over the past year and carefully considered feedback in designing this year's package. Our remuneration structure balances shareholder feedback on this topic with the continued application of a principles-based approach. This incentive structure is strongly aligned with the shareholder experience. Susan will speak to the detail of our approach and to the feedback that we received from last year's remuneration vote in her address. Let me turn to sustainability. This remains key to our business, and we continue to evolve our reporting. While Xero Limited is not subject to the new Australian Sustainability Reporting Standards, we are voluntarily and progressively aligning our climate disclosures with IFRS S2.
That is IFRS S2. This year, for the second time, we publish a separate sustainability report covering our people, our responsible use of data, and our sustainability commitments. I am also pleased to report that our climate-related targets were approved by the Science Based Targets initiative in the 2026 year. Let me turn to the board. This year, we are sadly saying goodbye to Anjali Joshi. She will not be standing for re-election at this meeting after three years on the board. Anjali has brought deep global expertise in product and technology, and her experience as a professional director has strengthened our board through an important period of growth for Xero. I am delighted to ask Anjali today just to say a few words. Anjali, over to you.
Thank you, David. To my fellow directors, our investors, and the global Xero community, thank you. It has been an absolute pleasure and privilege to serve as part of Xero's board over the past three years. Xero has an exceptional team and a clear lived purpose to make life better for people in small business, their advisors, and communities around the world. I am immensely proud of the resilience, operational discipline, and product velocity we have demonstrated together. As a technologist, I have been especially inspired by Xero's strides in AI, like the rollout of Xero's agentic platform, JAX, Just Ask Xero, and how this team balances rapid innovation with a deep commitment to data responsibility, sustainability, and an inclusive purpose and performance-driven culture. While my journey as a Xero board director concludes today, I am proud to have contributed to the company's journey.
My belief in Xero's mission to champion small businesses remains strong. I leave the board and Xero's leadership team in a strong position to continue to deliver on Xero's significant global opportunity. The future here is exceptionally bright, and I cannot wait to watch Xero's continued success and growth. Thank you.
Well, thank you, Anjali. Again, on behalf of the board and shareholders, thank you for your wonderful contribution. We have really appreciated it. Alright, w e move forward. We hope to announce also a new board director in the next few months. The board continues to review our composition and succession planning to ensure that we have the right balance of skills, knowledge, and of course, the global experience that we require to support Xero's long-term opportunity. I would also like to take this opportunity to thank my fellow directors for their contribution and commitment throughout the year, and I also want to reaffirm the board's commitment to a positive working environment at Xero. That is so important, and we will continue to address any historic issues as they arise. This does remain a very high priority for us.
On behalf of the board, I would also like to thank Sukhinder and the Xero leadership team for another year of strong performance. We are immensely grateful for the dedication and passion both shown by the leadership team, but all of Xero's people, which is fundamental to Xero's success. I would also like to thank you, our shareholders, for your ongoing support and confidence in Xero. With that, I would just like to bring this part of the meeting to an end. What I would like to now do is hand over to Sukhinder before we commence the formal business of the meeting. Sukhinder, can I pass to you for an update on the business?
Okay. Thank you, David, and good afternoon from San Mateo. It is great to be joining you virtually for our annual meeting. Today, I will cover Xero's fiscal 2026 results and themes, our strategic priorities, and our outlook. Let us start with the results. Operating revenue grew 31% to NZD 2.75 billion, and adjusted EBITDA rose 18% to NZD 757 million. Revenue growth was sustained across ANZ, the U.K., and the U.S., with the U.S. accelerating, and EBITDA growth remained strong even as we absorbed continued investment in Melio. I would like to highlight two key themes. First, the strong quality of our organic story. Organic revenue was up 21%, 19% in constant currency and adjusted EBITDA up 30%. Secondly, the achievement of a Rule of 40 outcome on an as-reported basis of 48.5%, showing the strength of both our revenue growth and the quality of our cash generation.
On a pro forma basis, Rule of 40, adjusting for Melio, was 36%. Turning to strategic execution, as David has said, our 3x3 strategy is hitting its stride as we become the financial operating system for small businesses. A few product highlights from a standout year include, first, the launch of Xero Bill Pay, powered by Melio on xero.com in the U.S., which gives SMBs full cash flow management in one place. The take-up has been strong, with thousands of customers signing up, and TPV growing nicely month-over-month. Secondly, key product launches that we achieved across the 3x3 include Xero Analytics platform launch, the embedded payroll offering in the U.S. via Gusto. The launch of Xero Simple in the U.K. that supported the rollout of MTD for income tax by the government this year are just a few.
Thirdly, we sharpened our go-to market even further across direct and partner channels, and we further improved the Xero mobile experience to lift acquisition there as well. But where I want to spend the most time today is where we are materially moving the dial, our U.S. business and our AI innovation. In the U.S., on a Xero organic basis, revenue growth has accelerated from 13% in fiscal 2024 to 25% in fiscal 2025 to 30% in fiscal 2026. By doing exactly what we said we would, with disciplined investment in our target segments. With Melio joining us, pro forma fiscal 2026 U.S. revenue reached NZD 530 million, up 50%, and pro forma gross profit dollars reached NZD 186 million, up 36%. That gross profit dollar trajectory is what matters most.
We're building real scale on the world's largest SMB market while improving our average revenue per customer with payments. We remain on track for Melio synergies from cross-sell into Xero's customer base and shared infrastructure, and for run rate EBITDA breakeven by the end of H2 fiscal 2028. On the back of this momentum, we've decided to step up our brand investment in fiscal 2027 in the U.S. This is a deliberate sequencing decision as we really wanted those 3x3 jobs to be in good shape and complete before committing to a multi-year spend. It's a long-term measurable investment that we aim to see help lift the performance of every channel. Now on to our biggest opportunity, the agentic era. We're uniquely positioned to win in a time of unprecedented change, multiplying the value we deliver to customers with AI.
Xero began as a system of record, but years ago, we started evolving into a system of action, then decision-making, first with traditional AI, then with investments like Syft Analytics and global payments, and now agentic AI takes that all to a new level. We think of our AI as accountable intelligence. Our commitment is a platform that stays transparent, auditable, and trusted by every user. We think that all underpins our position as the trusted financial operating system for the AI era with multiple layers of value we offer to customers. At the foundation of our OS is our infrastructure layer that connects thousands of bank feeds, tax APIs, regulated payment rails, and other integrations.
On top of that sits our data layer, enriched, verifiable, protected, secure financial data, and the proprietary models built on 20 years of real-time small business transactions that power our own applications, our model tuning, and those of our partners. Above that is our application layer, which includes, of course, our accounting, payments, and payroll offerings, and of course, our agentic super agent, JAX, which offers model-agnostic AI-driven features across our key jobs. On top of all of that in the value chain is our go-to-market layer, which supports around 5 million customers, 250,000 accountants and bookkeepers, and an efficient distribution engine at scale. That layer is evolving, too. AI players are becoming new distribution channels, and we already rank highly in AI citations globally.
Moreover, through our Anthropic and OpenAI partnerships and our newly announced Microsoft partnership, customers can now tap into Xero's financial intelligence directly inside these other productivity layers, and it drives traffic back to our full operating system. Bringing this together, we are in a strong position to deliver value to customers through launching new AI features also. We are already seeing such great traction as we enhance JAX in things like auto bank rec and launch even newer features like smart doc capture. This is resulting in deepening usage and increasing adoption across our customer base. Looking ahead, we are aligning AI value to how customers use it, bundling core capabilities into plans, offering add-ons for wider access, and we will test consumption-based pricing where it fits, designed to drive adoption while reflecting the overall value we deliver.
Our opportunity in the AI era is both powerful and exciting for both customers and internally. AI is not just something we are building for our customers. It is clearly reshaping how Xero operates internally as well, so that we can drive greater productivity and enable our people to move even faster. Today, over 83% of Xeros use AI daily, and our internal AI momentum is just as strong. 97% of engineers are using at least one AI tool, and AI developer tools are saving around three and a half hours per individual per week and rapidly accelerating time to product launch. As an example, we recently redesigned and rebuilt our timesheets experience, completing in 10 weeks what would have previously taken six months.
This is just one example of a broader program we now have in place as well, which we call our Citizen Builders program, where staff are asked to reimagine and rebuild workflows internally that we can use to leverage efficiency and create increased productivity with AI. Turning to the years ahead, we are reaffirming our FY 2028 aspiration and our FY 2027 guidance, targets that underscore our confidence in the growth strategy of the company and our ability to balance robust growth with operational efficiency. We have strong revenue momentum with a clear pathway to more than doubling group revenue from FY 2025. Our pro forma Rule of 40 sits at 36% and is well on track to be back above 40% in fiscal 2028. We continue to expect Melio to reach run rate break even on an adjusted EBITDA basis in the second half of fiscal 2028.
As explained in our fiscal 2026 presentation, we are now able to provide both a revenue and adjusted EBITDA guide for fiscal 2027 specifically. Revenue is guided to be between NZD 3.62 billion and NZD 3.73 billion, supported by a balance between average revenue per customer expansion and customer growth, including some initial monetization of newer AI features. On an adjusted EBITDA basis, we expect to deliver between NZD 860 million and NZD 920 million in fiscal 2027, including incremental U.S. brand spend of up to NZD 55 million. There's a higher historical weighting this year towards H2. This reflects the timing of our investment spend across CAC, the phasing of Melio's breakeven trajectory, and our normal H2 revenue seasonality. Our fiscal 2027 outlook reflects the confidence I and the management team have, as well as the board in the Xero opportunity.
We're a company that is well positioned to deliver in the short, medium, and long term and create significant value for shareholders. We're excited to work together to capture this opportunity. Before I conclude, I want to thank everyone who plays a role in our journey, especially our Xeros around the world, who work so hard and with purpose for our customers and partners. I'm really proud of the workplace we've built, and we'll keep working to make it even better. My thanks, too, to David and the board for their support and hard work, and to you, our shareholders, for your ongoing support. I'll now hand back to David for the formal business of today's meeting.
Well, thanks to Sukhinder for that really great update about the business. Let's now move to the resolutions and voting for the five resolutions, which is now open and will remain open for five minutes after the close of the meeting. Our company secretary has confirmed the notice of meeting has been sent to all shareholders and other persons entitled to receive it within the notice period. The matters requiring consideration today are outlined in detail in that notice of meeting, and the notice will be taken as read. Xero's financial year 2026 financial statements, together with the auditor's report, are all in the annual report, which is available on our website. All five of today's resolutions are ordinary resolutions. This means that to pass, they require more than 50% of votes cast by shareholders entitled to vote and voting on the resolution.
Now, I do want to stress Resolution 5 is a non-binding advisory resolution as we voluntarily choose to put the remuneration report to a vote with feedback to be considered by the board when setting future remuneration strategy. Xero's share registry provider, MUFG Corporate Markets, will conduct the voting by way of poll, and Julie Stokes, MUFG Corporate Markets, will act as Returning Officer. Votes will be counted after the end of the meeting and results published on the ASX and Xero's website. Shareholders or their proxy holder can cast their vote using the electronic voting card received after validating online registration. To validate registration, you'll be asked to enter your security holder reference number, SRN, or holder identification number, HIN, plus postcode if you're in Australia, or country if you're outside Australia. To then cast your vote, click the Edit Card button.
The proxy votes that have been submitted have been lodged on the ASX prior to the meeting and will be set out on the slide shown for each resolution. For some context, the current number of Xero shares on issue is approximately 170 million shares. Shareholders have appointed the chair of today's meeting, that is me, as proxy for approximately 135 million shares, voting either for, against, or with discretion for all resolutions. As indicated on the proxy form and in the notice of meeting, my intention as chair is to vote all discretionary or undirected proxies held by me in favor of each resolution. The first resolution relates to the authorization of the board to fix the remuneration of Xero's auditor, Ernst & Young. Let's now go to questions. Operator, are there any questions from telephone participants regarding Resolution 1?
There are no questions on the phone line at this time.
Thank you, operator. I will now take questions from shareholders who have submitted written questions via the online platform. Simon, are there any questions regarding Resolution 1?
Thank you, David. We have not received any questions.
Well, thank you, Simon. As we haven't received any further questions, we'll now move to the next resolution. I did want to stress that proxy votes that have been submitted prior to the meeting for this resolution are actually on the screen now. Let's now turn to Resolution 2, the re-election of directors. Resolution 2 concerns the re-election of Mark Cross as a director of Xero. Mark has been on the board since April 2020, retires at this meeting, and offers himself for re-election. The board, other than Mark, recommends Mark to you as a Xero director and unanimously supports his re-election. He has been a strong contributor to the board. I'm now going to ask Mark to say a few words about himself. Mark.
Thank you, David, and thank you all for the chance to seek your support for my re-election as an independent director of Xero. I first joined the board in 2020, and it's been a privilege to be part of Xero's journey since. Over the past six years, I've come to appreciate what drives Xero's success, discipline, focus, and our people. This will be my third term if I'm re-elected. As many of you know, my executive career was in investment banking and corporate finance across New Zealand, Australia, and the U.K. For the past 14 years, I've been a non-executive director in chair and director roles across software, telecommunications, healthcare, and funds management. That's given me exposure to a wide range of industries and governance settings, and it continues to shape how I think about Xero's strategic position and what shareholders expect of this company, profitable growth and lasting value.
I've chaired the Audit & Risk Committee for the past five years and remain a member of the People and Remuneration Committee. Those roles keep me close to what's important, financial performance, risk oversight, and the people strategy that underpins Xero's long-term capability. People drive customer outcomes, customer outcomes drive financial performance, and financial performance drives shareholder value. Looking back over six years, a great deal has been achieved.
Our products and platform are substantially stronger, and so are our financial results in both revenue growth and cash generation. Xero's 20-year track record of adapting through complex conditions, while holding its focus on profitability, growth, and innovation, gives us the right foundations for the dynamic market we're in now and the opportunities and challenges it brings. I'm particularly excited about the tailwind that AI represents for us. First, to make Xero more valuable for small business customers and their advisors.
Second, to help our people work with more focus and productivity than ever. Xero is not standing still. We're turning AI to our customers' advantage, as well as our own. Turning to our share price, we're not pleased with the performance over the last year. We continue to believe, though, that we have the right strategy and are executing well against it. Delivering performance remains our absolute focus. I have real confidence in our leadership capability and our people to keep executing that strategy well. My fellow directors and I, and our CEO and leadership team, are clear on where we will compete and how we will win. I'm fully committed, and I have the drive and capacity to keep contributing effectively as a director.
My focus is aligned with yours as shareholders. To see Xero achieve its significant global potential and create lasting value for shareholders and all stakeholders. With your support, I look forward to working with my fellow directors, Sukhinder, and the wider Xero team to deliver on that goal. Thank you.
Well, thanks, Mark, and let me just reinforce what a great job you have done in terms of chairing the Audit & Risk Committee. Right. Let us now invite shareholders to submit any questions regarding this resolution. Operator, are there any questions from telephone participants regarding Resolution 2?
There are no questions on the phone line at this time.
Okay. Well, thank you. Let us now turn to Simon to see if there are any questions from shareholders who may have submitted written questions via the online platform. Simon?
Thank you, David. We have one question from shareholder Stephen Mayne , who asks, at the 2023 AGM, Chair David Thodey said there had been a 15% vote against the re-election of Director Mark Cross because proxy advisor ISS wanted to make a point about your failure to offer shareholders a non-binding rem report vote. Commendably, you heeded this message and voluntarily delivered such a vote ever since. At last year's AGM, there was a stunning 48.7% protest vote against the rem report, up from 22.5% in 2024. What did Mark Cross make of all of this, and has he suffered another protest vote today?
Well, look, thank you, Stephen, for that question. I will throw to Mark in a moment, but I do want to stress that, as you know, we are not bound by ASX rules, but we do take it very seriously to take the feedback on board. As Susan went through, she addressed a number of those considerations from proxy advisors about the structure of the U.S. remuneration, which we are very committed to because of our strategy. Let me throw to Mark to see if he'd like to respond in any way. Mark?
Thanks, David. First thing I'd say is, I think as your point is, as a company, as an individual director, we take the voting very seriously about the message that it sends. I think, in no doubt, like last time as a member of the Remuneration Committee, my vote has been impacted by the proxy advisors. I think all I can do is focus on doing a good job.
As an ASX-listed company, we obviously have strong ambitions globally, and our pay practices need to reflect the absolute need to match our strategy with the people to execute it, and that rubs with some ASX-listed remuneration practices. We continue to listen to our shareholders, and we'll do everything we can to match to the extent possible, while still staying faithful to that strategy and the need to align that with people. As I say, I hear the message loud and clear and will continue to work hard for all shareholders.
Right. Thanks, Mark. I think, as Susan said, we want to be true to our principles around remuneration, true to our strategy. We are going to continue to work this through. We are not the only company in the world having these challenges. Stephen, we will continue to have that dialogue as we go forward. Anything else, Simon?
Thank you, David. There are no further questions.
Okay. You will see, since I have not got any other question, the proxy votes that have been submitted are shown up on the board, on the screen, and we will now move to the next resolution. We now move to Resolution 3, which relates to the proposed increase in the non-executive director's fee cap. The proposal is to increase the maximum annual fees that may be paid to all of the non-executive directors by NZD 1 million. That is going from NZD 3.3 million to NZD 4.3 million per year. Our policy is to review non-executive director fees annually and the fee cap every two years. We have not requested an adjustment to the fee cap in the past three years.
The proposed increase in the director fee pool does not mean directors get an equivalent increase in fees or that the whole of the new maximum amount will be used in the near future. Indeed, as was detailed in the notice of meeting, we have confirmed that Xero will not be increasing director fees in this financial year 2027. The increase is intended to enable flexibility around our board succession to ensure that Xero can continue to attract and retain high caliber non-executive directors, including in the overseas markets. I would like to invite any shareholders to submit any questions regarding this resolution now. Operator, are there any questions from telephone participants regarding Resolution 3?
There are no questions on the phone line at this time.
Okay. I will now take questions from shareholders who may have submitted written questions prior to the meeting via the online platform. Simon, any questions at all?
No questions received. Thank you, David.
Okay. Again, you can see on the screen how the proxy votes have been submitted prior to the meeting for this resolution on the screen. Right. We now move to Resolution 4, which relates to the U.S . incentive scheme. Xero maintains the U.S. incentive scheme to enable Xero to remunerate relevant U.S. domiciled employees of all levels with equity-based incentives, including options or restricted stock units.
The scheme was last approved in 2023 with a limit of 8.8 million securities. Xero is requesting approval of an additional 4.4 million securities under the scheme to support Xero's continued ability to attract and reward U.S.-based talent. If approved by shareholders, the new share allocation limit for awards granted under the U.S. incentive scheme will be 13.2 million ordinary shares for the purpose of certain exemptions to securities laws in the state of California and U.S. tax laws. Now, with that, I'd like to invite shareholders to submit any questions regarding this resolution. Operator, are there any questions from telephone participants?
There are no questions on the phone line at this time.
Thank you, operator. Simon, are there any questions that have been pre-submitted on the online platform?
There are no questions. Thank you, David.
Okay. Well, thank you. Since we haven't received any further questions, we're going to move on to the next resolution. But again, you can see the proxy votes that have been submitted prior to the meeting for this resolution on the screen there. We move to the final resolution for today, which is Resolution 5. As I mentioned, this is a non-binding advisory resolution to adopt Xero's Remuneration Report. The Remuneration Report can be found on pages 92- 121 of Xero's 2026 Annual Report. The resolution has been put forward voluntarily as a matter of good governance. While the result of the resolution will not bind Xero to the board, as we talked about before, or have other legal consequences, the voting result will be considered by the board in setting future remuneration strategy in the following year's Remuneration Report.
We'll continue to look at the feedback. The board does not consider making a recommendation on this resolution to be appropriate, given each director has an interest in the matter. Xero has voluntarily put a voting exclusion in place relating to this resolution, and the votes will be disregarded if they are cast by a director, including myself, the CEO, and the CFO, and closely related parties. There are some limited exceptions to this exclusion, which have been set out in the explanatory notes in the notice of meeting that has been provided to you, our shareholders. Before I hand to Susan as chair of the People and Remuneration Committee for some comments, I do want to highlight that this will be a fulsome response to much of the feedback that we've received on this resolution.
While this does extend the length of Susan's address, which we think is appropriate, and today's meeting, we do think it's very appropriate to outline the board's thinking in detail and to respond to some of the issues that have been raised. Addressing remuneration governance with the rigor it deserves does not come at the expense of operational momentum, so we do want to make sure we keep focused on this business. Rest assured, driving Xero's business execution and long-term performance remains our absolute priority, but we are very conscious of remuneration. Susan, over to you.
L ook, thank you, David. The last financial year can best be described as a year of strong execution against our strategy. As you've already heard today, operating revenue grew by more than 20%, adjusted EBITDA reached NZD 757 million, and free cash flow was NZD 560 million. We also continue to deliver strong Rule of 40 outcomes as Sukhinder outlined. This performance has been underpinned by the leadership, capability, and passion of our Xero people, who are motivated to fulfill Xero's purpose across the globe. As a New Zealand domiciled company that supports customers now in over 180 countries, we've made deliberate choices to ensure that Xero has the right capabilities to successfully deliver strategy and scale globally.
B efore I go further, I want to acknowledge that the Xero share price has not reflected the strength of our operating performance, and this has been extremely challenging for you as our owners. Xero's share price has fallen significantly over the past 12 months. A large part of that decline reflects a global rerating of the software sector rather than Xero's own performance. That reality does not make the experience any easier for you as shareholders. We also recognize that there remains some market skepticism towards the strategic acquisition of Melio. The board remains strongly of the view that this acquisition aligns with Xero's 3x3 strategy and positions us extremely well for growth in the U.S. market moving forward. T urning to the Remuneration Report and our response to the 2025 shareholder vote.
Our approach to pay at Xero continues to be guided by three principles, performance, the scope and criticality of the role, and the location in which the individual is based. Location is the principle that generates the most debate. Xero's ambition requires talent who have built and run global technology businesses at scale. That talent is scarce, and the reality is that the market for it is heavily concentrated in the United States. If we wish to attract and retain leaders with that experience, then we need to respect their expectation that their remuneration will be benchmarked against their home market. It is for this reason that the board has not changed the underlying structure of our framework. It is important to note that almost all of our larger active shareholders expressed their support for our approach to pay local market rates.
They realize it is not realistic to expect to be able to attract the talent required to execute Xero's global strategy by offering Australian pay structures to non-Australians. Guided by shareholder feedback, we've once again strengthened our disclosures in our Remuneration Report. For the first time, we have published the relative total shareholder return targets and payout ranges attached to the current year's long-term incentive, rather than disclosing them after the fact. We've also expanded our commentary on how the board assessed the CEO's individual short-term incentive performance so that you're able to see the reasoning and not simply the outcome. It's been pleasing to receive positive feedback from both shareholders and proxy advisors on those changes. Turning to today's resolution, we have seen each of the major proxy advisors recommend against the voluntary resolution. Three themes have come through consistently across the proxy reports.
The first is that incentive outcomes for the year should have been reduced to reflect the shareholder experience. The second is that too large a proportion of the CEO's equity vests on continued service rather than on performance. The third is that the CEO's recent share sale, together with the absence of a minimum shareholding requirement, falls short of what is expected of a company of our scale. Let me respond to each. Starting with incentive outcomes and shareholder experience. The short-term incentive is a structure that is intended to reward delivery on the strategic priorities during the financial year. The board set ambitious targets, which is evidenced by the fact that even after a strong year of operating performance, the full-year 2026 scorecard outcome was only 94.2% of target.
The short-term incentive also includes an individual performance multiplier of up to 1.5x to reward for individual relative performance throughout the year. The board elected to award the CEO an individual performance multiplier of 1.2x to reflect a strong but not exceptional personal performance throughout the year. Adjusting the short-term incentive outcome based on total shareholder return, or TSR, would be inappropriate following a year of exceptional operating execution. Relative TSR is explicitly excluded from the STI framework because it is already measured and evaluated within the long-term incentive structure. Adding it also to the STI would create a double penalty effect for the same metric, which proxy advisory firms caution us explicitly against doing. By contrast, the long-term incentive structure is intended to incentivize sustainable value creation over time for shareholders.
The performance metrics in the long-term incentive include both operating performance and relative total shareholder return, and this is measured against the EMCLOUD Index . Putting aside the principle generally applied by proxies that they do not like boards applying any form of discretion, the key reason why the board did not apply downward discretion in this case is because overriding the long-term incentive outcome ignores three years of consistent performance.
From April 2023 to March 2026, Xero beat its growth targets and ranked at the 64th percentile against the EMCLOUD Index . Overturning this based on short-term stock volatility unfairly dismisses three years of progress. But that said, if the Xero share price does not recover, future performance-based payouts will decline, aligning executive pay with the shareholder experience. Moving to the concern that a large proportion of the CEO's equity vests on continued service rather than on performance.
We need to acknowledge that service-based equity is market standard in the U.S. tech sector remuneration packages, with the balance between service and performance-based equity being 50/50. This is market standard. Xero needs to respect this market reality if it wishes to secure U.S. talent. Despite this, our Xero executives have accepted a structure that is 40% service and 60% performance equity in their attempt to demonstrate respect for ASX pay expectations. Finally, the board acknowledges the frustration regarding Sukhinder's recent share sale, and we take the feedback seriously. Sukhinder informed the board that she had personal tax obligations that required cash, and she needed to sell shares. We should note that she continues to hold a substantial ongoing stake in Xero, including 586,000 time-based and performance-based RSUs that have already been granted.
It is also worth noting that as a U.S.-based executive, Sukhinder is accustomed to the U.S. practice where a CEO's total shareholding is calculated based on both the combination of unvested and vested shares. Nevertheless, we recognize that it is reasonable to expect the Chief Executive of a company of Xero's scale to build and maintain a meaningful personal holding. The board has approved the introduction of an executive minimum shareholding scheme that will require the CEO to build and maintain a stake of 5x her annual base salary within three years. Now let me turn to the change to the CEO's remuneration that was announced earlier this week as part of our normal annual remuneration review process. The board considers regular engagement with shareholder representative groups and proxy advisors to be an important part of our good governance.
While different investors may have varying perspectives, this engagement process provides an important opportunity for feedback. Over the past few months, we held over 30 meetings with our shareholders to seek their thoughts on CEO compensation review, acknowledging the accelerating market for packages being paid for global tech talent against the backdrop of the rerate of the Xero share price. It was pleasing to hear shareholders' support for Sukhinder and specifically the strength of execution that's been delivered under her leadership. There's also strong support for Sukhinder to be provided with an annual remuneration review. A number of major shareholders acknowledged the need to adjust her compensation package to align with relevant benchmarks given performance. All shareholders made it clear that they did not want the board to reprice, cancel, or replace the existing options grants. They also asked that no further option grants be made to the CEO.
In response, we confirmed that the existing CEO options grants remain unchanged and there hasn't been, nor is there intended to be, any new options grants for the CEO. Shareholders also, quite understandably, sought confirmation that the comparator group used for benchmarking compensation remains appropriate given the change in Xero's share price. The board used independent advisors to provide market data and views on our comparator peer group based on an objective methodology, which you can see fully disclosed in our remuneration report. Given the share price decline, the board tested the comparator peer group twice this year. The outcome of these reviews confirmed that our benchmarking peer group remains appropriate to inform compensation decisions. The outcome of the benchmarking process for CEO compensation showed that the CEO's total target remuneration sat below the 25th percentile.
Considering shareholder feedback, the strength of the operating performance, and our strategic priorities, the board decided to move the CEO's total target remuneration to the 50th percentile or market median of the U.S. peer group. It is important to note that total target remuneration does not translate to take-home or realizable pay in the same year. Due to the vesting profile of the package, approximately 60% of the full-year 2027 total target remuneration vests in three years' time. This means that until then, the CEO's realizable pay is expected to be materially below total target remuneration. For example, we expect full-year 2027 realizable pay for the CEO to be around $4.4 million. To wrap up, I would like to acknowledge the votes we've received today against the voluntary resolution around our remuneration report.
It is clear that the poor share price performance for the last year has materially influenced this vote outcome, and we respect and understand the strength of this feedback. As a board, we seek to make decisions to set Xero up for sustainable long-term success. This requires us to be principle-based in our decision-making, be adaptable to changing circumstances, and to stay focused on supporting our customers to be more successful. While some might be tempted to react to short-term challenge, our approach has been to remain focused on growing a business whose economic value is supported by genuine and sustainable economic fundamentals. Our ability to attract and retain the global talent required to enable this purpose has been core to Xero's success to date and will continue to be core to Xero's ongoing success.
The votes cast today and the comments that have been provided to us will be carefully considered by the board in setting future remuneration strategy and preparing next year's remuneration report. I would like to thank my colleagues on the People and Remuneration Committee for their support and dedication through the year. I will now hand back to David.
Well, thanks, Susan, and I think you can see that was a very fulsome explanation, but also the amount of discipline and rigor that has gone into thinking through some of these challenging considerations. Thanks, Susan, and also the Remuneration Committee. Now I would like to invite shareholders to submit any questions regarding this resolution. Operator, are there any questions from telephone participants concerning Resolution 5?
There are no questions on the phone line at this time.
Okay. Well, thanks, operator. Right. Simon, I am okay to take questions now from shareholders who may have submitted written questions before.
Thank you, David. There are no questions at this time either.
Okay. Okay, great. Well, look, we'll then move on to the next resolution, but I do just want to say that we do take the feedback very seriously, and you'll see the results up on the screen. As Susan said, we'll continue to have an active dialogue as we go forward. Right. We now note that we'll move to the general business element, and we're happy to take some time to answer any general questions that are on shareholders' minds. Operator, let's go to you firstly. Are there any questions at all from people on the phone?
There are no questions on the phone line at this time.
Okay. Well, I know that we have a few online questions, so Simon, let's go to you now, and we'll work through the questions.
Thank you, David. The first question comes from shareholder Gregory Agnew, who asks, Xerocon is obviously an amazing place to learn the latest about Xero, but shareholders do not have access to any of those speeches. Is it possible to put the speeches online so shareholders can learn from the speakers?
That's a pretty good idea. I dare say there will be some considerations around that and which ones we can put up there. Can I throw to Sukhinder? Are there any of the product or the announcement videos that we can put online? I know some of them have been on LinkedIn.
Sure.
Yeah.
Yes, let me pick that up. We do market announcements around Xerocon, around all of our product releases. We also generally make available, I think, the main stage keynote on streaming. The main stage, the first day, is available on streaming if you, and I think it's available online, and that's a great way to hear our major announcements as well as the releases we do around every Xerocon.
Great. Are they still online now, Sukhinder, so people could go to them?
I am sure we can find them and repost them if required. Yes, they should be.
Great. We will get that.
Should be in our press section.
Yeah. We will get that address out to our shareholder. Yeah. Great. Next question.
Thank you, David. The next question comes from Peter Barrowclough, who asks, "You are asking shareholders to increase remuneration for directors and employees. This is at a time when the share price has been tanking, and I'm personally concerned that we are at risk of a takeover. It looks like the Melio strategy is showing promise, but it is not there yet. Justify why we should approve these increases before this strategy has delivered, i.e., why directors and employees should be rewarded before shareholders are."
Okay. Let me, there's quite a bit in that question, Peter. Firstly, no increase to directors' fees, just the pool. What we're doing is just giving some flexibility to bring on some directors from other jurisdictions where often you have to pay more. In terms of the increase in management, Susan went through that in quite a bit of detail. The reason we're doing it, firstly, the operating performance of the business is very strong, and we do benchmark to the U.S. and at the 50th percentile. We're just keeping our executives right in line so we can really attract good people. Susan, do you want to add anything to that?
Yeah. No, I think you've answered that really well, David. Look, I think we've really got to focus in terms of the operating performance, in terms of how we reward and acknowledge our people for that. In terms of the directors' fee pool, I think we're very clear in the notice of meeting that there's no intention for any directors to have any fee increases in this year, to show solidarity, frankly, for the position that our shareholders are in.
Yeah. To the other questions, I note your comment on takeover. I can't really make any comments on that. That's really the market would be the market. In terms of the Melio transaction and incentivizing management, I want to be very clear. We have a plan for Melio, and the realization of that value is included in the go-forward metrics around LTI and now are included in the STI as well.
They haven't been really recognized for anything in the last year because that was the operating performance of the year. Obviously, there's been some impact on the share price, and everyone has taken a hit on that. In the go forward, now there is an expectation that investment does yield the returns that we are looking for. All good questions, Peter. Thank you. I think they're our response. Yeah. Simon, back to you.
Next question comes from shareholder, Mr. Basudeb Ghosh, who asks, "The share price of Xero is gradually going down. I would like to know what the future outlook of this share is, and if the company is taking any corrective measures to improve the share price."
Right. Well, thank you for the question. We would be interested too. Look, we are very committed to doing what we can do, which is execute on our strategy that is yielding results. As Susan said, and I said, and also Sukhinder, markets rewrite around certain industries, sometimes on reality, sometimes on speculation, and we cannot do much about that. But what we can do is continue to grow top-line growth, drive efficiency, serve our wonderful customers, partner with our partners, and make a difference every day.
That's what we are doing and will continue to do. The 3x3 strategy is very clear. Wonderful progress around AI enablement within the organization, and I am delighted to see the great functionality being delivered to our bookkeepers and accountants and also to our small business customers. We are very focused on that, and that is going to be the best way to get improvement in the share price. Back to you, Simon.
Thank you, David. The next question comes from Stephen Mayne again, who asks, "Please summarize the recommendations by the various proxy advisors, including on this proposed increase in the board fee cap. Which of them recorded a vote against? What reasons did they give? Did this translate into material protest votes on any of the remuneration resolutions?"
Well, thanks, Stephen, for that question. Susan specifically addressed that particular issue. As she said, part it has been the share price decline, part it has been the structure of the remuneration that we have seen, and part it has been the share sale. Susan, do you want to comment any more?
Look, I did summarize the three consistent themes that came through the proxy reports, which were not relevant to this particular resolution. What I am aware of is I have had feedback from the New Zealand Shareholders' Association that they would have liked us to include it in the notice of meeting, more detail effectively on the data which substantiates the increase in the amount being requested, and also how much is really a buffer in terms of the quantum required, but also a buffer and more explicit information. We have had that conversation. We have agreed to take that on board for next year. You can see in our remuneration report a full disclosure of our peer group that is used to benchmark and other relevant matters.
Yeah. Thanks, Susan. Look, there is that underlying challenge of having U.S. executives when you are listed in Australia, and I think that is the other big one that we are going to continue to discuss with proxies and our investors as well. Okay. Simon, back to you.
Next question comes from Mrs. Cherylann Kelly, who asks, "Profitability is such that why not reward shareholders with a dividend, even if initially it is more modest due to business investment?"
Well, thanks, Cherylann, for that question. We refer to that as capital management and what we do with our free cash. The stage of the company is that we are in a high-growth phase, and hopefully that will continue for a few more years. When you're in a high-growth phase, the returns to shareholders over the longer term is to invest back in the organization rather than pay dividends. We look at it every year. We'll continue to look at it. At the moment, the judgment of the board and management team is that we can get a better return to shareholders by investing in the company, building new product, driving new access into new markets, and continuing to see where we can lift our share in serving our wonderful small business customers. So thanks for the question.
Next question, David, comes from Stephen Mayne again, who asks, "Ernst & Young took over as external auditor in October 2015, replacing PwC. Have we run a competitive tender for the audit in the ensuing 11 years? When are we next planning to run a competitive tender? Don't talk about partner rotations after five years. We all know that is the law. This is about audit firm tendering and good governance on procurement of this important service for shareholders. U.K. law mandates an audit tender every 10 years. Do we adopt that as best practice? If not, why not?
Well, thanks, Stephen. Look, we're following pretty much ASX guidelines at the moment. We continue to review the performance of the auditor every year, and we look at the performance of both the lead director and their contribution to the organization. I've personally been involved with the ASX and looking at what is the best standards here. I'm sure the process is going to evolve over time, but at the moment, we feel comfortable with the support we're getting from Ernst & Young, and they're doing a good job.
[inaudible]
Sorry, who was that? I am not sure. Okay. So look, that is the answer, Stephen. We will continue to have that dialogue as we go forward. Simon, back to you.
Thank you, David. The next question comes from Amiga Holdings Private Limited, who asks, "I do not understand why on earth would the Chief Executive sell all her shares if she believes the company is doing well? I am sure she had other assets that could be used to pay her tax."
Right. Well, look, thanks for the question. I think that we have pretty much answered that. But look, she has not sold all her shares, is the first point. I think Susan said she has 586,000 unvested, but within time and performance-based shares going forward and a large number of options. And look, I do want to stress, Sukhinder approached me as Chair about the selling of her shares. She had a tax requirement, and she needed cash. Now, remember that her remuneration is a small fraction of her total remuneration is in cash, and therefore there is a liquidity consideration. But let me throw to Sukhinder to make any comments on that. So, Sukhinder.
Sure. Thank you, David. Yes, as you noted, first of all, I hold almost 1.5 million in equity instruments between options vested, unvested, and shares in Xero. So I am certainly a holder of a large position in the company. I think as David noted, as a KMP, and as a U.S.-based KMP in particular, we do need to manage, and I do need to manage liquidity, at probably one or two windows a year in which I am not in possession of material non-public information. That most typically happens right after annual earnings, where there is a small window in which I can realize any liquidity needs I have, and in this case, certainly significant tax obligations.
Right. Yeah. Thanks, Sukhinder.
Thank you.
Yeah. The other thing that Susan mentioned is we have put in place a minimum shareholding requirement, which we think is good practice, and we have added that going forward. But as Sukhinder said, she still holds a large number of unvested shares, and in the U.S., that is usually considered as part of a CEO's commitment to the organization. However, we have changed the policy, so hopefully that won't be as relevant going forward. Simon, back to you.
Thank you, David. The next question comes from Stephen Mayne , who asks, "While virtual AGMs suit me in terms of attending 300 + meetings a year best practice is to run a hybrid meeting with a physical component as well so shareholders can grill the directors in person. Will Chair David Thodey undertake to hold a best practice hybrid AGM next year, like most dual-listed New Zealand companies do? Does he have a problem with hybrids because he also chairs Ramsay Health Care and they run physical-only meetings in Sydney, which is even worse than a virtual AGM? Get with the program, please, David."
Okay. Thanks, Stephen. I will work on getting on with the program. The consideration we have with Xero is that we have three board directors in the U.S., two senior executives in the U.S., and two in New Zealand, one here, and myself in Australia. The logistics of getting everyone together is both time-consuming and very expensive. There are pros and cons. I think we would prefer to have a face-to-face meeting if we could, but this seems to be the best option on balance, and it does, as you rightly say, give people access to us and to ask questions. I am sorry, Stephen, I do not think we are going to be having a hybrid meeting in the short term, but happy to pick it up with you separately if I am missing anything. That is the logic of why we do it.
It is very company specific. Ramsay, on the other hand, all our directors except one, is in Australia, and that board director is actually just retiring, so it is a completely different situation. Simon, back to you.
Thank you, David. Next one comes from Stephen Mayne again who asks that, "The AFR reported the following this week. Xero investors have been particularly irritated by the fall in the stock price and Singh Cassidy's share sales. In June, as David Thodey met with investors to convince them of the new REM terms, Singh Cassidy sold more than $4 million worth of shares, citing her need to pay tax. In July, she sold the rest of her shares in the company for the same reason. Could the CEO please respond to these criticisms? Why did she sell so many of her shares? Couldn't she have taken out a loan to pay the tax?"
Well, thanks, Stephen. I think we've sort of gone through nearly all those questions. I'm not sure we can add much more. Let me go to Susan first. Is there anything you think we can add? Because we're trying to be as fulsome as we can. Is there anything we've
Look, I've gone through it in my speech.
Yeah.
I think Sukhinder's talked about—
Yeah.
—her perspective on it.
Yeah.
You've outlined the process we follow as a company.
Yeah.
I mean, short of Sukhinder thinking of anything else to add, I'm not sure—
Yeah.
—there is too much to say.
Yeah. I mean, Sukhinder, is there anything you want to add to what you've already said?
No, I think we have covered it all.
Yeah.
I continue to be a very large holder of instruments in the company. Again, 1.5 million in options and equity. I would continue to say, while it might be $4 million, I think in USD terms, there is a need to manage certainly large tax obligations on my end. Thank you.
Yeah, great. Stephen, as Susan noted, the optics was not great, but there were considerations behind it. We do not think that what you would take out of that, which would be the CEO not being committed to the company, is appropriate. But we have put in place the minimum shareholding, so we will not get into that situation again. I think, while I will take it on myself, I could do better next time. So, I will do that. Simon, anything else?
A question from shareholder Susan Robinson, who asks, "As an investor and customer, I am concerned about the continued price rises we get every year and don't feel I'm getting increased value. The price rises and lack of increased value are making me seriously consider other providers. Also, increasing subscription prices every year is not a sustainable strategy for revenue growth, as SMEs are under cost pressures, too."
Well, Susan, thanks for your comment. Look, we feel very strongly around the price and the value of the product should be directly related. It has been a period of enormous inflation, where we've tried to cover a lot of the wage inflation we've seen, as you would've seen in the market as well. But we've also delivered enormous functionality in the product. We continue to review our pricing strategy to the value that we're creating. Look, we should follow up with you personally to sort of see whether you're getting the value that we think is in the product.
I might throw to Sukhinder, because Sukhinder, I know that you look at this in a lot of detail, and you try to make sure that we're delivering as much value as we can and don't want people to feel that they're not getting the right return from their investment. So over to you.
Yeah, sure. Absolutely, I think it's an important question. So we continue, as you noted, to keep adding value into the product. What we also do every year is look at every SKU by market, the competitive pressure, the macro environment, and we try and find the right balance every year between adding value into the product and managing a price that is great for the value. In recent years, as an example, certain SKUs at Xero have not changed their price, while others we have moderated from previous years. So we continue to manage this SKU by SKU, market by market, segment by segment, to try and make sure we're matching value to the features we deliver for the segment in question. We look forward to continuing to find that balance and delivering overall a valuable product for its price point. Thank you.
Yeah, thanks, Sukhinder. So look, Susan, if you'd like to, we'd like to follow up with you and sort of make sure. I appreciate some of the value in the product. Expense reconciliation's been great. Saves a lot of my time, which is really good. Anyway, Simon, any other questions?
Thank you, David. That concludes all the questions we have received.
Okay. Well, look, firstly, thanks to shareholders and the questions. They're always appreciated, and we're on a journey. This does bring us to the end of the 26th annual meeting. Before I formally close the meeting, a quick reminder that if you are intending to vote on the formal business of the meeting, you should finalize and submit your votes now. Voting will close about five minutes' time after we close out.
As mentioned earlier, the results of the voting will be released on the ASX once the votes have been counted after this meeting. I do want to thank you all shareholders for attending the annual meeting today. We appreciate the time you invest and your support, and we look forward to another strong year. Hopefully, the markets will be a bit more favorable to us, but we continue to execute our strategy. I will now declare the meeting closed. Thank you very much for your time.