Revenue rises but losses widen at Sophos

Cloud-enabled end user and network security solutions provider Sophos Group issued its interim results for the six months to 30 September on Wednesday, with like-for-like billings up 15.1% year-on-year to $282.3m.

The FTSE 250 company said new customer billings were up 19.9% year-on-year, driven by its Unified Threat Management and Sophos Central products.

Like-for-like subscription billings increased by 19.4%, while the cross sell of UTM and Endpoint improved to 8.4% compared with 6.4% a year ago.

Its renewal rate, including upsell, improved to 104.1% from 100.5%.

Reported revenue grew 9.7% year-on-year to $256.9m, and 10.4% on a constant currency basis, which the board said was driven by subscription revenue which increased 12.7% year-on-year.

Sophos’ deferred revenue balance increased to $511.3m, from $498.7m, driven by strong billings growth.

The company’s cash EBITDA margin was 18.2%, down marginally from 18.8 percent, which the board put down to further investment in research and development.

It continued to expect modest year-on-year margin improvement for the 2017 financial year.

Operating losses also widened to $24.6m, from $13.4m, as a consequence of the increased research and development investment, a higher share-based payment expense and a higher deferral of revenue from a shift in the mix of billings to recurring subscription contracts for the period.

Unlevered free cash flow was $62.2m, a significant increase year-on-year, which was reportedly due to improvements in operating performance and cash management and in part aided by first/second half phasing.

The company claimed significant innovation during the period, with its release of a new next-generation endpoint protection product, Sophos Intercept X, the further extension of the Sophos Central cloud-based management platform, and the industry's first synchronized encryption product, Sophos SafeGuard.

Its proposed interim dividend was 1.3 cents per share, up 86% year-on-year.

“We are pleased with our first half results which were in-line with our outlook, and especially pleased with our cash flow performance which was ahead of our outlook,” said chief executive Kris Hagerman.

“We continued to outgrow the IT security market, supported by a strong demand environment in our target market, industry-leading technology, the quality and reach of our extensive partner channel, the consistency of our operational execution, and the strength of our financial model, where we benefit from high levels of recurring subscription business.

“As we enter the second half of the fiscal year we expect continued strong growth, in particular as we benefit from key new product releases in next-generation endpoint and next-generation firewall, and the continued momentum of our Sophos Central cloud management platform.”