ASX-listed accounting platform Xero is the latest technology company to put a scythe through its workforce, cutting up to 800 positions globally to improve business results.
The New Zealand software company’s cuts come a day after Nasdaq-listed Atlassian announced it was cutting 500 holdings.
Xero (ASX: XRO) employs about 5,000 people, which means that about 15% of the workforce will leave.
The company is also ditching Sydney fintech Waddle, who acquired it in August 2020 for A$31 million. Xero expects to take a write-down of A$30-40 million in FY23 as a result of this decision.
New CEO Sukhinder Singh Cassidy, who took the position five weeks ago, said the decisions will streamline operations, realign the company and deliver a better balance between growth and profitability.
“We have made great progress in executing our strategy. But as we strive to build a better performing global SaaS business and enable Xero’s next phase of growth and better customer outcomes, we need to streamline and simplify our organization,” she said.
“These changes, and our decision to reinvest in key strategic areas, will adjust our operating cost base as we balance growth and profitability while taking a robust approach to capital allocation that supports long-term value creation.”
In a statement to the ASX, the company said it will cut 700-800 positions to improve operating profitability as its operating expense to revenue ratio is expected to decline significantly in FY24.
The job cuts are expected to cost the company $25-35 million, with most payments due in FY24.
Management aims for an operating expense/income ratio of approximately 75% in the next financial year. The company will provide guidance on its FY24 outlook when it publishes its FY23 annual report in May.
Xero in November reported its half-year results on September 30, 2022, posting revenue growth of 30% to NZ$658.5 million (A$603 million), with the company’s net loss about 270% higher than NZ$5.59 million 12 months ago, to NZ$16.1 million (A$14.6 million). EBITDA increased by 11% to NZ$108.6 million.
The result was mixed compared to analyst expectations.
Current guidance for FY23 is that total operating expenses, including acquisition integration costs, as a percentage of operating income for FY23 are expected to be at the low end of a range of 80-85%.
Singh Cassidy said the cuts were “difficult but necessary steps… a careful consideration of the interests of all our stakeholders”.
“We do not take these decisions lightly and we recognize that today is a very difficult day for our people,” she said.
Shares of Xero were up more than 10% to over $87 in Thursday morning opening trading.