Accounting, Fintech

Xero’s Q3 numbers don’t add up

I’ve been analysing the recent “Appendix 4C Quarterly Cash Flow Report” from Xero. No matter how I slice and dice the reported revenue number, compared with the last couple of years, this recent number just doesn’t fit.

In summary:

  • Q3 (NZ Fin. Year, October-December) revenue was announced at $52.607m
  • That’s $4.416m (9%) up on Q2


  • Q2 was reported as $7.715m (19%) up on Q1 – that’s a MAJOR growth rate slow down (Q2 c.f. Q3), even allowing for seasonal variations, which we can trend from previous years (Q2 c.f. Q3 was 19% vs 17% growth last year);
  • Worse still, Q3 2014/15 saw growth of $4.646m – meaning YoY growth not only shrank as a percentage but in fact in raw dollar terms.

According to the numbers published, Xero added more revenue in late 2014 than it did in late 2015.

  • I’ve then looked at the most recent Investor Presentation from September 30 and found the reported ACMR (Annualised Committed Monthly Revenue) sat at $218m = $54.5m/quarter – so one would have expected October-December to exceed this number, any less would in fact indicate a retraction not growth…$52.607m is a smaller number than was committed at the start of the quarter…?!

Revenue didn’t actual grow October-December, it retracted based on the ACMR number given at the end of September!

So what could explain this without major panic setting in among investors?

From the announcement: 

The deterioration of the NZD impacted current period operating and investing cash flows adversely by $1.8 million compared to Q3 FY15

Could FX variance explain such a major anomaly in revenue growth we see in Q3 vs Q2?

  • NZD v AUD October 1 2015 = 0.91044 actually improved by December 31 2015 to 0.93517
  • NZD v GBP October 1 2015 = 0.42328 again, actually improved by December 31 2015 to 0.46342
  • The NZD also improved against the USD for the Quarter (0.64061 to 0.68290)

So by my reckoning, any revenues should have actually been positively affected by exchange rate variances during the quarter.

Sorry, what am I missing? What have I got wrong?

There are obviously a few possibilities:

  • Something is flawed in my logic, happy to be corrected
  • The Q2 number was overstated and Q3 is a correction…?
  • They use fixed FX rates and between reporting Q2 and Q3 they accounted for the earlier drop in the NZD from highs around April 2015..?
  • A deterioration in debtors?
  • As a shareholder, I hope it is not that growth has hit a wall or churn has gone up…?

Can someone at Xero please relieve my concerns?

Chris Teeling (Xero Strategy) has responded to my concerns:

Hi Matt

Thanks for taking a keen interest in our growth. Appreciate you completing the analysis, what it hasn’t captured is the actual impact of FX movements on our cash flows. Cash and revenues are calculated across the whole quarter and just using period end FX rates will significantly distort the picture.

Adjusting for FX movements through the quarter, our quarter on quarter cash inflows in FY16 was higher than FY15. I am glad to confirm that Xero continues to grow strongly.

Please contact me if you want to discuss further


Chris Teeling from Xero Strategy

Thanks to Chris for taking the time to respond. Here is the FULL quarter fluctuations to assess his comment (vs Q2). I am still concerned that the below FX fluctuations do not fully explain what we see in the Q3 Cash Flow report – a significant slow-down in revenue growth – surely growth consistent with the previous quarter or year, could have offset these fluctuations and do not explain away the under-performance vs September 30 ACMR?


Vs Q2


vs Q2


Vs Q2

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Matt Paff (BBus GAICD) is founder of Value Adders and a veteran of the Accounting, Payroll and broader B2B Technology industry. Matt’s resume includes time as GM at Attaché Software, one of the world’s longest surviving accounting software companies, as well as starting, growing and exiting a successful accounting technology & business process consulting firm. Matt has held advisory board positions with accounting firm Imagine Accounting as well as Governance technology start-up GovernRight. In his spare time, Matt also runs a RegTech start-up vSure. Matt is passionate about a practical, plain English perspective. He is known for being a straight-shooter and appreciated for his forthright, researched opinions.


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