NZ accounting software maker Xero
(ASX:XRO) has become the latest technology company to announce major staff cuts, telling investors on Thursday it would axe up to 800 roles around the world.
The news followed an announcement by Sydney based but US listed Atlassian on Wednesday that saw 500 jobs go.
The move is the first by Xero’s new CEO, San Francisco-based Sukhinder Singh Cassidy who took the top job after Steve Vamos stepped down last November.
It’s a classic move by a new CEO to “kitchen sink” a company on taking over from a long-time predecessor. That is where the new CEO cuts jobs, businesses, changes focus and turns the cost into a non-cash impairment (even though in this case millions of dollars will flow out of the company in redundancy payments).
The pitch for the changes is that the new CEO is a ‘new broom’ with new ideas and the former CEO is now gone.
The smaller financial services group, Bravura did it earlier in the week as part of a massive $190 million plus loss plan from the new CEO for job cuts, office closures and technology write offs and other charges.
Seeing Xero employed 4,915 people in September last year, according to its latest report, the cuts represent a substantial 16% of its global workforce.
It’s not clear yet how many positions will be affected in Australia or in NZ where the company started business.
Investors liked the clean out and sent the shares up more than 10% to $87 by the close Thursday. They were as high as $154 in September, 2021 in the middle of the pandemic when working from home was all the rage and Xero’s products were well suited to that.
The new CEO’s changes are pretty wide sweeping. She told analysts on a call on Thursday, the cuts would be across all of Xero’s functions and regions.
“I will note of course that proportionally we have higher headcounts in some regions and some areas, so you can expect that there’ll be some proportionality there,” she said.
Ms Cassidy also said there would be a deeper redesign of Xero’s technology, which “may result in role impacts of a smaller magnitude” in that part of the business.
“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,” she said in the statement to the ASX.
“The program involves reshaping Xeros organisational structure by reducing 700-800 roles across Xeros business. These headcount reductions will improve Xeros operating profitability as its operating expense to revenue ratio is expected to reduce significantly in FY24.
“Along with reinvestment into strategic priorities, management is targeting an operating expense to revenue ratio in FY24 of around 75%.” (It’s currently above 80%.)
“Further detail and FY24 guidance and outlook will be provided as part of Xeros FY23 annual reporting in May.
“Xero maintains its current guidance for FY23 that total operating expenses (including acquisition integration costs) as a percentage of operating revenue for FY23 are expected to be towards the lower end of a range 80-85%.
“This excludes restructuring charges associated with this program – expected to be $25-35 million. These costs are expected to have an immaterial impact on cash flow in FY23 with the majority of payments expected to occur in FY24.
“Xero remains committed to its aspirational focus on continued operating efficiency over the long term and will take a disciplined approach to reinvestment of cash and generating long term shareholder value.
“Xero also plans to exit cloud-based lending platform Waddle – which Xero acquired in 2020 – and expects to incur a write down of $30-40 million in FY23 as a result of this decision. Xero remains committed to its broader small business platform strategy.”
These changes represent the unwinding of much of the direction the company took under former CEO, Steve Vamos.
At the time of the announcement of the new CEO last November, Xero chair David Thodey paid tribute to what Vamos had achieved.
“We also want to acknowledge Steves significant contribution to Xeros growth and development as a global business. Steve has led Xero from 1.4 million to 3.5 million subscribers; from $484.4 million to $1.5 billion annualised monthly recurring revenue; and total subscriber lifetime value (LTV) from $3.2 billion to $13 billion.”
“Steve has overseen significant expansion of Xero including completing several acquisitions in Canada, the US, Sweden, Singapore, Denmark, Australia and the UK; completing two capital raises; operationalising our global sales team and go-to-market channels; and introducing sustainability and climate targets for Xero.”
