Sophos slips as billings growth slows, renewal rate drops

Sophos Group saw reported that its cash EBITDA for the first quarter of its financial year fell 26% to $20.3m, as group billings saw their momentum falter.

During the quarter ended 30 June, the IT security firm saw lower than anticipated group billings growth of 6%, just 2% at constant currency rates, and the renewal rate fall to 114% in the first quarter compared to 141% a year ago.

Revenues, however, jumped by 24% to $175.5m as subscription revenue grew 27% thanks to a strong performance from the Sophos Central and Intercept X businesses, with a currency tailwind also helping.

In end-user security, relatively lower levels of cross-selling activity were seen during the period than expected, partially due to last year’s accelerated demand resultant from the global Wannacry ransomware attacks.

Meanwhile in network security, renewal rates were affected by a legacy product transition, as migration from Cyberoam to Sophos XG Firewall approaches a conclusion.

Chief executive Kris Hagerman said: "As we look forward, we expect a return to mid-teens constant currency billings growth in the second-half of the year.

"In H2, prior-year comparisons become more favourable, the temporary effects of legacy product transitions diminish, and the renewal rate is expected to return to a more normal range. This, combined with the expected strong growth in our future renewal book into FY20, continues to give us confidence in our long-term outlook."

He said that as Sophos's solutions are managed in a single integrated cloud platform, where the products "actively communicate and work together to deliver better security", this was a "highly differentiated approach and continues to resonate well with customers and partners".

However, it did not resonate with investors and Sophos shares were down 9% to 473.8p by early afternoon on Thursday.