Xero appoints heavy-hitter, Andy Lark, to push US sales

Thursday 9th October 2014

Cloud accounting software firm Xero has snared Andy Lark, an expatriate New Zealander with a heavy-hitting global career, to be its new chief marketing officer as it moves to strengthen its push into the vital US market and confirms it expects a net loss for the six months to Sept. 30 of $25 million and 80 percent subscription revenue growth this financial year.

Lark's appointment accompanied Xero's latest trading update, in which it records further strong growth in subscription revenues, up 85 percent to $52 million for the half year to Sept. 30 and monthly committed subscriptions at $11 million, meaning annualised revenues are now running at $132.3 million, up 87 percent on a year ago.

Both announcements come three weeks after Xero announced the surprise resignation of the recently appointed chief executive for its US operation, Peter Karpas, and a string of broker reports questioning Xero's ability to crack the US market, where it is seeking scale ahead of profitability against incumbent accounting software provider Intuit. A presentation published to the NZX this morning highlights "dissatisfaction with execution and leadership" in the US as one of four areas that "need work" for Xero to succeed in the US market.

The latest update shows Xero has $171 million still in kitty to invest in building its customer base under a strategy that expects no profits until sufficient global scale is achieved.

Xero shares have fallen from a record high of $44.98 in March to a closing price of $21.16 a share yesterday.

Currently chief marketing and online officer at the Commonwealth Bank of Australia, Lark is a major score for Xero. He takes up his new role next month and has been a member of Xero's advisory board since the company was established seven years ago.

Auckland-born, Lark is also a former global marketing executive for Dell, the online computer sales giant, where he had responsibility for the Dell.com website, was chief marketing officer before that at LogLogic, which at the time was a Silicon Valley start-up, and before that was head of global marketing and communications for Sun Microsystems.

He will "lead Xero’s global marketing strategy and further drive growth in the US," the company said.

“As we continue to accelerate our growth globally, adding executives of Andy’s calibre -- with deep experience of the US market -- demonstrates our ability to attract world-class talent and commitment to bringing Xero to more small businesses than any other platform on Earth,” said chief executive Rod Drury.

Meanwhile, today's update shows Australia is Xero's largest market by both customers and revenue, with 100 percent growth in customers to 158,000 over the year to Sept. 30, and annualised subscription revenues of $63.9 million, with New Zealand second at 119,000 customers, up 38 percent over the year, and annualised subscription revenues of $34 million, an increase of 42 percent over the year.

The scale of the company's challenge in the US is clear. While it experienced 116 percent growth in annualised revenues, they total $8.2 million and actual revenues in the six months to Sept. 30 total $3 million. Customer growth was 120 percent over the year, to total 22,000 the company's total global total of 371,000 customers.

Of its 13,857 partner firms - essentially accounting firms that provide a channel to market for Xero - 1,663 are in the US, an increase of 127 percent for the September year, while total global growth in partners was 57 percent, for a total of 13,857, 6,400 of whom are in Australia, 2,818 in New Zealand, and 2,467 in the UK, where Xero has entered a strategic partnership with big four accounting firm KPMG. Annualised revenues from the UK are now running at $20.9 million, up 105 percent on a year earlier.

In the US, Xero says the transition to cloud-based services "will play out over several years", with most American accounting firms focussing on compliance and are "only at the beginning of the transition to the cloud and proactive advisory services."

As well as needing to work on execution and leadership, the company identifies "some product gaps, speed or refining and tuning sales model, and recruitment" in the San Francisco Bay area as challenges in the US market.

More executive time in the US is one of the ways Xero expects to do better, with Drury spending two of every five weeks in the US, its chief financial officer Ross Jenkins now based there, and Lark's appointment a key element because of his 15 years' experience in US markets.

There was no mention of a replacement for Karpas in the material.

BusinessDesk.co.nz

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