ICYMI: Your AI Accountant Is Here
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A company that plays in the cloud and data really works with small business companies. A great read, in fact. We're talking about the company Xero. It's an $18.1 billion market cap cloud accounting software and small business platform company. So, Kinder Singh Cassidy is the chief executive officer of Xero, which trades outside the United States, is based in Wellington, New Zealand, and she's joining us from San Francisco on this Tuesday. So, Kinder, good to have you here with Tim and myself. Tell

us a little bit more about your company, the bulk of your business, where growth comes from, who your customers really are industry-wide as well as geographically. Sure. Well, thank you so much for having me on. As you know, Xero is a cloud-based accounting platform, global in nature. We're about $2.1 billion in revenue AUD. We trade on the ASX. But the most important thing is we have over four

million customers around the world in key geos like the US, the UK, Australia, New Zealand, and 180 other countries, providing them not just cloud-based accounting software to small businesses and their accountants, but also providing payroll and payment services alongside that. So global footprint, many markets, but certainly the US, the UK, and Australia are big three.

So given what you do, you have an incredible view on the economy globally, not just based on who your clients are and what they're actually doing with their software, but how your software is actually selling. So given the data points that you understand, the regions in which you operate, how would you characterize the global economy right now?

You know, I'd say the global economy is almost as you all read it, which is, I would say, an economy of mixed signals versus the data. So as you noted, we operate across many geographies and you would still see relatively strong jobs growth. As an example, you would still see relatively strong sales growth across many markets for our small business customers. And yet,

the sentiment in many markets is one of uncertainty you have small businesses in different markets looking at different tariff pressure that might put pressure on their cost of goods sold or imply price increases for their customers they are certainly nervous about cash flow in that regard and then you have some enduring issues for small businesses uh that are despite macro you know macro economic times which is the enduring problem of cash flow in managing things like late payments so

We see, as I said, relatively mixed signals, but I think we can agree that they feel uncertain in this environment. And of course, we believe our software is there to help them manage their cash flows in that uncertainty. How much of the uncertainty is a result of what's going on here in the United States?

I think a fair amount. I mean, look, you know, as you all know, small businesses in the U.S., including in the U.S., in the U.S., as an example, small businesses were growing very healthily pre-COVID, five to six percentage points a year, according to our data. And then what we saw is with COVID, a big disruption. And then, of course, just as they started to recover from COVID, inflationary pressure, 11 interest rate increases.

And this is they were trying to starting to settle from that and maybe the promise of, let's say, a deregulated environment. Well, along comes new uncertainty with it, as an example, tariffs. So they are having to navigate a lot.

in the last 10 years, certainly, but certainly in the last few months, even more. So, Kendra, one of the things, too, we're worried, not worried, curious about, and I know it's something you have been working on, and that is to expand your presence in North America, and it sounds like the U.S. specifically. Walk us through what you have been doing, the investments you've been making, and what kind of growth you are seeing. And I'm also just curious, generally, about your exposure to the U.S. market.

Yeah, so interestingly, we're probably one of the few native cloud SaaS businesses of very large scale that is underweight the U.S., meaning the U.S. was a new market for Xero. Obviously, I'm based here in Silicon Valley and have been here for the last 30 years. But for Xero, they entered the U.S. market maybe a decade ago on the promise of bringing cloud-based accounting to the market. It was largely a desktop market.

And over the last 10 years, I'd say the company's steadily increased its focus and presence in the U.S. and is now seeing a nice acceleration of those efforts in subscriber growth, very strong subscriber growth. We just reported results about a week ago. Very strong revenue growth here in the U.S. And what we see is very much a lot of white space. There's still a large, large number of small businesses that have never digitized their back-end accounting here in the U.S.,

And obviously the opportunity to do so saves them time, saves them money, and with AI can offer new insights. So we see a pretty attractive market landscape here that we've been building towards. - How do you do this at scale with a Salesforce that, you know, is it cold calling? Because when you're calling on these small and medium sized businesses, some of them are indeed very small and those could be pretty small accounts. Is it self-service? How do you handle the incoming or is it outgoing?

Well, you know, in the U.S., we have a multi-channel approach, just as we do everywhere around the world. We have a pretty big direct or self-service motion where small businesses can discover Xero online through ads, through social media. We have large Facebook and LinkedIn engagement and can come to the website and sign up directly. So we have a big direct funnel. We have a sales force.

But that Salesforce, believe it or not, calls on accountants and bookkeepers, not small businesses directly. Because of course, many of the small businesses we have work with an accountant or bookkeeper for their taxes and bookkeeping. And then the third thing is we have increasingly new channels and new partnerships working with other vertical SaaS providers.

You know, people like the neo banks around the world where they refer customers into Xero as an SMB is starting their journey in payroll or payments or banking. And so we work across all three channels everywhere in the world pretty successfully. How are you using AI right now from the perspective not just of with your clients, but also when it comes to sales?

Yeah, so look, I think that like many cloud-based accounting services or cloud-based services, our first goal is to put AI in the hands of our customers. So the full focus is on launching JAX, which we did this past year. JAX is Just Ask Zero. It's our sort of companion, if you think on the site, of your like mini CFO in a box.

that helped you use Xero. This year, we're very much focused on the expansion of Jax for our customers so we can do more jobs for you on our platform. And of course, that is the promise of AI. It just really gives back, first and foremost, time on these tasks, accounting tasks, payment tasks,

And then to give you more intelligence, more reasoning, and all the insights our platform has to offer to really expand that offering through AI. That's the first and foremost focus of the company right now. You know, so Kendra, it's so funny. When earnings season we go through in the United States and we get to the application software part of the earnings cycle, we're like, oh yeah, there's another one. There's another one. There's another one. It's not companies we talk about all the time. Some of the bigger ones we do. It's like driving from the San Francisco airport into San Francisco and seeing the billboards. Yeah.

It's exactly. You know, we do not have a billboard on the 101. I will say that we're more targeted in our advertising. But I know a lot of tech companies do. Our small businesses are all over North America. So we spend our dollars elsewhere outside of just the tech corridor. That's what I'm trying to get to, like our audience or the investment audience. Like, what is it that they need to understand about you guys specifically amid a space that has a lot of players?

Sure. So first of all, just to note, Xero is one of the highest growing software SaaS platforms in the world. We just grew 23% year over year. We're profitable. We're rule of 44. Just because we don't trade on NASDAQ does not mean we don't have a global footprint. We were based and launched in from the Australian New Zealand region. So that's why we trade there. But the most important thing is, you know, we are a strong growing SaaS player betting on the Mac

grow digitization of small business software. Right. And the cloud accounting space still has a lot of yield in most markets in the world, including the U.S. So excited to play where we do and excited to serve this many small businesses. Are you looking to list in the United States? Like as you make investments in the U.S., look to expand your business in the U.S., are you looking to list in the United States?

Well, right now, we're pretty happy on the ASX. We have shareholders who are very fundamentally oriented and interested in our long-term growth. We do have U.S. shareholders in the share base. If we would ever consider, you know, listing, it would probably, we'd be thinking about maybe at some point in the future, a dual listing, no timeframe, no commitments, but really just to widen the ability for all investors to participate easily in the zero story. But pretty content right now with that ASX listing and a really great shareholder base.

Hey, very briefly, before we let you go, tariffs and the new tariff regime here in the U.S., where the average tariff rate has pretty much increased fivefold over the last year, and that's before deals have been signed with many different trading partners here in the U.S. How is it affecting the small businesses that make up the North American portion of your companies?

Well, I think you have hit the nail on the head. I think what they're trying to forecast is what the cost or disruption is to the supply chain. You know, let's hope it's not disruption, but rather, you know, the management of a lower tariff scenario. We will wait and see what happens here over the next 90 days. I think they're mostly trying to figure out, hey, what is the implication for the cost of goods sold? What's the implication for availability of supply? And lastly, what's the implication for price rises they may need to entertain in order to be able to hold markets?

margin if their cost of good goes up. And again, like we really think of our business is trying to help them navigate those changes with increasing insight and foresight. All right. Really appreciate getting some time with you. Sukinder, thank you so much. Sukinder Singh-Cassidy, Chief Executive Officer of Xero, joining us from San Francisco. Colgate Total may make your favorite toothpaste, but

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