Sophos' Partner Growth Spurs Earnings

Despite a lagging economy, Sophos reported strong financial results that executives largely attributed to robust channel growth in its fiscal year ended March 31, 2008.

"Sophos continues to gain market share because its products explicitly address the growing market demand from a broader, yet simple, integrated solution equipped to manage the increased security complexity of the corporate network," said Steve Munford, CEO of Sophos, in a statement.

Sophos executives noted that numerous product enhancements improved the company's overall portfolio, with upgrades to Sophos Endpoint Security and Control 8, as well as updates of the Sophos E-mail Security Appliance and Sophos' Web Security and Control offerings.

Those solutions have proven to be increasingly attractive alternativesas the economy slows down and businesses tighten IT budgets. As a result, Sophos has taken away market share from larger competitors, execs say.

"People don't stop buying security in a down market," said Chris Doggett, Sophos' director of channel sales in North America. "In fact, when pricing or budgets get a bit tight, people start to focus on what they are getting vs. what they're paying for. It opens up the opportunity for high-quality providers to be considered."

A copious amount of growth also was due to aggressive partner sales after the company went to a 100 percent channel model last year, Doggett said. Revenue growth from the overall active North American partner base averaged 164 percent, while the top 20 percent of that partner base averaged 712 percent revenue growth year over year. The company saw 203 percent year-over-year growth in partner-originated leads, he said.

"We have been following a very selective partnering strategy," said Doggett. "We've got a very good mechanism now to track partner business in both directions--the business partners are bringing to us and the business we're bringing to them.

"Those folks are very active in selling and promoting Sophos' products, and we invest very actively in them," he added.

In addition, Sophos wrapped up the integration process with NAC provider Endforce after its 2007 acquisition, which allowed Sophos to offer a stand-alone NAC product as well as enfold NAC functions into its Endpoint Security and Control 8.

Overall, the company's billings came in at $213.9 million in 2008, representing a 28 percent increase from 2007. Cash holdings increased 55 percent to $139.3 million by fiscal year's end, the company reported.

Deferred revenue also was up at $226.3 million, jumping 25 percent from last year's $180 million.

Other wins for Sophos this year included the addition of Jonathan Brooks and Nanci Caldwell as non-executive board directors. Also, the company recently won a 120,000 user deal at Northrop Grumman, following shortly on the heels of a 350,000 user deal at GE-"what it says was the largest security software deal of 2007.

Despite a less-than-rosy economic outlook for the upcoming year, Sophos maintains that it anticipates similar growth rates next fiscal year.

"We seem to have a winning formula and we'll continue to capitalize on that formula," said Doggett. "It remains to be seen if the industry is going to experience any significant slowdown. We're not seeing it today."

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