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Sophos Group plc Results for the year-ended 31 March 2019

May 16, 2019

Group revenue growth of 12% at constant currencyAdjusted operating profit(1) up 87% to $109 millionRapid transition to next-generation products(2), now representing 47% of business

OXFORD, United Kingdom, May 16, 2019 (GLOBE NEWSWIRE) -- Sophos Group plc (the “Group” / LSE: SOPH), a leading provider of next-generation cloud-enabled enduser and network cybersecurity solutions, today issues its audited results for the year-ended 31 March 2019 (“FY19″).

Financial highlights

-- Total group revenue up 11% to $711 million (an increase of 12% at constant currency) - Strong growth in subscription revenue,(3) up 16% year-on-year (an increase of 17% at constant currency) -- Billings(4) flat YOY at constant currency, reflecting a challenging YOY compare - Group net renewal rate of 124%, compared to 140% in FY18 which reflected elevated levels of cross-sell - Total billings were affected by a mix shift, with stronger growth in smaller customers particularly driven by managed service provider (“MSP”) monthly billings, and a modest reduction in the number of larger transactions compared to the prior-year period - Weaker Network hardware billings as customers extended refresh cycles - Total subscription renewal base now exceeds $1.2 billion, with the renewal base for FY20 up by 14% at actual rates (19% at constant currency), representing an increase of $55 million to $436 million - Strong growth in net new term customer additions to over 335,000 total customers, from 300,000 in FY18; now in excess of 382,000 when including MSP customers - 119% growth in MSP billings(5) to $19 million, with ARR(6) now at $27 million -- Continued strong demand for our next generation (“next-gen”) solutions - Next-gen business, including Sophos Central and XG Firewall, grew 30% at constant currency to $340 million, and now represents 47% of billings - Within next-gen business, Sophos Central billings up 23% to $228 million, off a strong compare -- Step change improvement in adjusted operating profit(3) - Adjusted operating profit increased by 87% to $109 million, from $58 million in FY18; driven by revenue growth and operating leverage, as well as a one-off benefit from the reduction in variable performance-related pay in the period - Cash EBITDA(7) declined by 16% from $199 million to $168 million as we continue to invest for growth -- Profit before taxation increased to $54 million, from a loss before taxation of $(41) million in FY18 -- Net cash flow from operating activities of $143 million broadly unchanged year-on-year with close management of working capital and after lower exceptional items -- Final dividend of 3.7 cents per share, an increase of 6% over the prior year - Total dividend for the year of 5.2 cents, an increase of 6%

Financial summary

FY19 FY18 Growth $M $M % Statutory measures Revenue 710.6 639.0 11.2 Profit / (Loss) before taxation 53.6 (41.0) nm Net cash flow from operating activities 142.9 147.7 (3.2) Alternative performance measures Billings 760.3 768.6 (1.1) Cash EBITDA 167.9 199.2 (15.7) Adjusted operating profit 109.0 58.3 87.0 Unlevered free cash flow(8) 123.8 139.6 (11.3)

Outlook

We believe the drivers are in place for continued future revenue growth, principally driven by growth in our subscription business, especially in our next-generation products. We intend to continue to invest to support this growth, with a return to operating profit margin leverage after FY20.

Note: Our guidance is now focused on revenue and adjusted operating profit, as we view the billings metric as becoming less indicative of the medium-term growth in our business; this will increasingly be the case as MSP revenues expand, as more of our products are delivered as a service, and due to the short-term variations in the renewal rate that can occur due to external factors and the timing of product releases.

Chief Executive Officer, Kris Hagerman, commented:

“Despite the challenges we faced in FY19, we are pleased with the strategic progress we made during the year. The demand environment for cybersecurity solutions continues to be robust, and we are confident that we are well positioned competitively, especially as more organisations move to adopt next-generation cybersecurity offerings. Increasingly, organisations of all sizes are looking for cloud-native solutions, centralised administration, integrated products, AI-powered protection, openness, and a service-oriented approach to security. Our next-gen solution set and strategy align well with these demands and have helped Sophos deliver strong growth in subscription revenue and customer count. We have become a leader in the next-gen cybersecurity market, and we are excited about the road ahead.”

For the full report, please go to Sophos’ Investor page on Sophos.com.

AboutThe Sophos Group is a leading global provider of next-generation cloud-enabled enduser and network security solutions, offering organisations end-to-end protection against known and unknown IT security threats through products that are easy to install, configure, update and maintain. For further information please visit: www.sophos.com. The Group has over 30 years’ experience in enterprise security and has built a portfolio of products that protects over 382,000 organisations and over 100 million endusers in 150 countries, across a variety of industries.

Forward-looking statementsCertain statements in this announcement constitute “forward-looking statements”. These forward-looking statements involve risks, uncertainties and other factors that may cause the Group’s actual results, performance or achievements, or industry results, to be materially different from those projected in the forward-looking statements. These factors include general economic and business conditions; changes in technology; timing or delay in signing, commencement, implementation and performance or programmes, or the delivery of products or services under them; structural change in the security industry; relationships with customers; competition; and ability to attract personnel. You are cautioned not to rely on these forward-looking statements, which speak only as of the date of this announcement. The Group undertakes no obligation to update or revise any forward-looking statement to reflect any change in expectations or any change in events, conditions or circumstances.

Contact

Sophos Group plc Financial Public Relations Tel: +44 (0) 1235 559 933 James Macey White / Mat Low Kris Hagerman, Chief Executive Officer Tulchan Communications Nick Bray, Chief Financial Officer Tel: +44 (0) 20 7353 4200 Derek Brown, Vice President Investor Relations

End Notes

1. Adjusted Operating Profit represents the Group’s operating profit / (loss) adjusted for amortisation charges, share option charges and exceptional items. 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. Restated for the adoption of IFRS 15 and change in accounting policy in respect of research and development expenditure tax credit scheme and provision for interest on uncertain tax positions, as explained in note 3 of the Financial Statements 4. 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. 5. MSP Billings exclude Reflexion. 6. 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. 7. 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. 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.