Sophos CEO: Rise In Ransomware Shifting Security Budgets, Priorities From The Network To The Endpoint

Sophos CEO Kris Hagerman said the increased attention on ransomware and the company's updated anti-exploit application have driven more interest around the endpoint protection business.

The Oxfordshire, England-based company shifted its go-to-market emphasis to address areas of concern following May's WannaCry ransomware attack and the Petya encrypting ransomware that flared up again in June, Hagerman said. Customers and partners have been focusing on ransomware, which has steered more conversations toward Sophos' endpoint tools, according to Hagerman.

"There's certainly an orientation of 'swim with the current' where customers and partners are the most focused," Hagerman told financial analysts during the company's earnings call Wednesday.

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The surging endpoint business also is being driven by the next-generation orientation of Sophos' endpoint offering, Hagerman said. The offering focuses less on signatures and takes more of a machine-learning and behavioral approach, he said.

That pivot will only be accelerated with the release of the next version of Sophos's Intercept X anti-exploit and anti-ransomware application, which incorporates Invincea deep-learning technology. An early access program with 1,000 channel partners actively participating recently went live, and the new version will be made generally available in early 2018.

Hagerman cautioned that the level of attention being devoted to endpoint security versus network security tends to ebb and flow over time. For instance, Hagerman said conventional wisdom a few years ago dictated that virtually every security problem could be solved through the network, and Sophos was at the time being asked why it continued to focus on its endpoint tools.

"There's a little bit of a swing of the pendulum over toward endpoint, but our expectation is that, over time, it will continue to move back and forth a little bit," Hagerman said. "They're both critical components."

Sophos' sales for the six months ended Sept. 30 jumped to $298.1 million, up 16 percent from $256.9 million the year prior.

Operating losses were $23.8 million, 3.3 percent better than operating losses of $24.6 million last year. On an adjusted basis, Sophos recorded an operating profit of $15.1 million, down 29.8 percent from $21.5 million the year before.

The company's stock climbed $0.09 (1.14%) to $8.15 in trading Wednesday. Earnings were announced before the London Stock Exchange opened.

Sophos's base of global channel partners increased to 34,000, up 30.8 percent from 26,000 a year ago. Meanwhile, the company's community of blue-chip channel partners – meaning they've carried out five or more Sophos-related transactions in the past six months – climbed to 6,500, up 20.4 percent from 5,400 a year earlier.

Network sales came in at $148.2 million, up 13.9 percent from $130.1 million last year. End-user sales accelerated to $136.5 million, up 20.4 percent from $113.4 million the year before.

Subscription-based revenue reached $240.8 million, up 20.8 percent from $199.4 million the year prior. Hardware sales, meanwhile, inched ahead to $52.2 million, up 2 percent from $51.2 million last year.

Revenue in the Americas jumped to $106.2 million, up 19.7 percent from $88.7 million at this time last year due to growth in both of the network and end-user segments.

For Sophos' 2018 fiscal year, which ends March 31, the company raised its outlook to billings growth of 20 percent to 22 percent and a 50- to 100-basis-point improvement in cash EBITDA margin.