# Sophos Group H1 FY20 shows continued progress in next-gen cybersecurity transition

- Link: https://www.directorstalkinterviews.com/sophos-group-h1-fy20-shows-continued-progress-in-next-gen-cybersecurity-transition/412797382
- Published: 2019-11-06T07:31:16+00:00
- Author: Giles Arbor

**Sophos Group plc** (LON: SOPH), a leading provider of next-generation cloud-enabled
enduser and network cybersecurity solutions, has issued its interim results for 
the six-months to 30th September 2019.

**Financial highlights**

· Reported Group revenue of $365.8 million grew 5% YOY (+8% CC)

 * Subscription revenue remained the principal driver of YOY growth, increasing 
   by 8% (+11% CC), and offsetting an 8% reduction in revenue from hardware (-5%
   CC)

· Reported Group billings(1) of $372.0 million increased by 5% YOY (+9% CC)

 * Next-gen(2) billings grew 40% CC to $208.6 million (H1 FY19: $148.6 million);
   Sophos Central grew 47% CC to $134.8 million (H1 FY19: $92.0 million)
 * Group net renewal rate improved to 121% (H1 FY19: 118%)
 * Enduser billings (+14% CC) benefited from cross-sell and recent product launches
 * Growth in Network subscription billings (+8% CC) was partially offset by a decline
   in hardware (-5% CC)
 * Annual-recurring revenue (“ARR”(3)) from MSP(4) grew by 79% at CC to $32.5 million(
   H1 FY19: $18.1 million)
 * New customer billings (+6% CC) benefited from MSP, closing with 409K total customers(
   FY19: 382K)

· Loss before tax of $1.5 million (H1 FY19: profit before tax of $26.0 million)

 * Reflects combination of the negative impact from exceptional restructuring and
   legal costs in the current period versus an exceptional credit which benefited
   the prior-year comparator
 * Adjusted operating profit(5) was broadly flat at $49.4 million, reflecting further
   planned investment
 * Cash EBITDA(6) increased by 24%, from $54.0 million to $66.8 million, with the
   rate of growth benefiting from the introduction of IFRS 16 – Leases (“IFRS 16”)(
   +10% pre IFRS 16)

· Net cash flow from operating activities increased by 15% YOY to $93.8 million

 * Helped by the expected phasing of some costs toward the second-half of the year
   and the introduction of IFRS 16 (+6% pre IFRS 16)

**Financial summary**

| 
 | H1 FY20 | H1 FY19 | Growth | Growth pre-IFRS 16^((7)) | 
|  | $M | $M | % | % | 
| Statutory measures |  |  |  |  | 
| Revenue | 365.8 | 349.5 | 5 | 5 | 
| (Loss) / Profit before tax | (1.5) | 26.0 | (106) | (103) | 
| Net cash flow from operating activities | 93.8 | 81.5 | 15 | 6 | 
| Alternative performance measures |  |  |  |  | 
| Billings | 372.0 | 352.7 | 5 | 5 | 
| Cash EBITDA | 66.8 | 54.0 | 24 | 10 | 
| Adjusted operating profit | 49.4 | 49.9 | (1) | (2) | 
| Unlevered free cash flow^((8)) | 90.4 | 71.6 | 26 | 16 |

Note: On 14 October 2019, the Group announced a recommended cash offer of US$7.40
per Sophos Share from Surf Buyer Limited, a company owned by funds managed and/or
advised by Thoma Bravo LLC. The details of the offer are set out in the announcement,
which is available at investors.sophos.com. Consequently, as indicated at the time
of the announcement, no interim dividend is proposed.

> **Sophos Group Chief Executive Officer, Kris Hagerman, commented:**
> “Our performance in H1 FY20 shows the continued progress we are making towards
> fully transitioning our business to next-generation cybersecurity. As we pursue
> this strategy, we are benefiting from our advanced capabilities and investments
> in the cloud, machine-learning, APIs, synchronized security, automation, managed
> threat response and more, to deliver enterprise-grade protection to organisations
> of any size.”

Notes:

1.        Billings represents the value of products and services invoiced to customers
after receiving a purchase order from the customer and delivering products and services
to them, or for which there is no right to a refund.  Billings does not equate to
statutory revenue.

2.        The next-gen product portfolio consists of the Group’s most advanced products,
managed in Sophos Central, notably including Sophos Intercept X for endpoint protection
and the Sophos XG Firewall.

3.        Annual Recurring Revenue is defined as the annualised equivalent of term
licenses, subscription agreements and maintenance contracts including OEM and MSP
but excluding perpetual licenses.

4.        MSP Billings exclude Reflexion.

5.        Adjusted Operating Profit represents the Group’s operating profit / (loss)
adjusted for amortisation charges, share option charges and exceptional items.

6.        Cash earnings before interest, taxation, depreciation and amortisation(“
Cash EBITDA”) is defined as the Group’s operating profit/ (loss) adjusted for depreciation
and amortisation charges, any gain or loss on the sale of tangible and intangible
assets, share option charges, unrealised foreign exchange differences and exceptional
items, with billings replacing recognised revenue.

7.        Growth adjusted to eliminate the impact of IFRS 16 – Leases in the current
period; see note 2 of the Financial Statements for further details.

8.        Unlevered free cash flow represents Cash EBITDA less purchases of property,
plant and equipment and intangibles, plus cash flows in relation to changes in working
capital and taxation.

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