FatPipe (FATN) Q2 2027 Earnings Call Transcript

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DATE

Wednesday, Nov. 4, 2026

CALL PARTICIPANTS

• Chief Executive Officer - Ragula Bhaskar
• Chief Financial Officer - Kanishka Ragula
• Vice President of Corporate Development and Investor Relations - Vikrant Ragula

TAKEAWAYS

• Q2 Revenue -- $4.83 million, representing 22% year-over-year growth driven by increased recurring billings, customer renewals, and new customer wins.
• Net Income -- $1.2 million, compared to a net loss of $40,000 in the same quarter last year.
• Adjusted EBITDA -- $1.2 million, reflecting a 60% increase from $0.7 million in the previous year's second quarter.
• Adjusted EBITDA Margin -- 24.1%, demonstrating a significant improvement from the prior year's period.
• Q2 Diluted EPS -- $0.09, an increase from $0.00 reported in the same quarter last year.
• Gross Margin -- 90%, remaining healthy as the company continues to execute on its business model.
• Recurring Billings -- $2.9 million, representing 55% year-over-year growth for the quarter ended Sept. 30, 2026.
• H1 Revenue -- $9.9 million, representing 25% year-over-year growth for the six months ended Sept. 30, 2026.
• H1 Net Income -- $2.43 million, representing a 250% increase compared to the first half of the previous year.
• H1 Adjusted EBITDA -- $2.45 million, representing 34% growth year over year.
• H1 EPS -- $0.17, representing a 240% increase compared to the same period in the prior year.
• H1 Gross Margin -- 91% on a blended basis, reflecting consistent operational performance.
• Salesforce Capacity -- 30 net salespeople currently active, as the company ramps toward a target of 36 by the end of March 2027.
• Salesforce Productivity -- 3 to 6 months for new hires to reach break-even or profitability, though larger deal cycles may require 6 to 9 months.
• Product RPO -- approximately $2.2 million, remaining relatively flat sequentially as legacy customers transition to recurring models.
• Education Contract Value -- $7 million total, contributing approximately $350,000 per quarter at a full monthly run rate of $118,000.
• SBA Loan Refinance -- a 1.85% reduction in interest rates achieved through refinancing an existing loan from before the company's initial public offering.
• Bank Credit Line -- $1.5 million secured from a local institution to provide additional financial resources if required for hardware acquisitions.
• Cash Flow Status -- a corporate break-even point reached in October 2026, following a quarter where cash was utilized to build inventory for order fulfillment.
• Salesforce Expansion Target -- 48 total salespeople planned for the following fiscal year to sustain growth momentum.

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RISKS

• Bhaskar stated, "SATBoost, it hasn't taken off as fast as we wanted," noting that most customers currently utilize satellite connections for backup redundancy rather than primary bandwidth speed expansion.

SUMMARY

FatPipe, Inc. (NASDAQ:FATN) reported second quarter revenue growth of 22% year over year, driven by increases in recurring billings and customer renewals. Management stated that the company achieved a cash flow break-even point in October 2026 and is focused on expanding its sales force to 36 individuals by the end of March 2027. The company introduced a new network monitoring product, Constellation, which management indicated has begun generating orders and is intended to consolidate cybersecurity and network analysis into a single stack. CFO Kanishka Ragula noted that while the transition of legacy customers to recurring models has kept remaining performance obligations relatively flat, recurring billings grew 55% compared to the prior year.

• Management acquired a small software technology company in October 2026 using internal resources to expand the FatPipe Technologies division.
• CEO Bhaskar noted that the Constellation product allows for real-time monitoring of every network device and port, providing a "one stop, one call" solution for cybersecurity and device inventory.
• The company reported replacing multiple VeloCloud customers and has several pending quotations for additional replacements as existing competitor contracts expire.
• Vikrant Ragula reported growth in the pipeline for government customer proposals through distribution partnerships with TD SYNNEX and Carasoft.
• Management stated that the company's current focus is maintaining a minimum base of 18% growth and 18% EBITDA margin in the upcoming quarters.
• Kanishka Ragula noted that recent Starlink deployments by SpaceX have increased reception for the SATBoost product among customers with 40 to 50 sites using satellite for primary transport.

INDUSTRY GLOSSARY

• Constellation: A FatPipe software product designed for real-time monitoring of wide area and local area networks, including individual device ports and software vulnerability tracking.
• NMS: Network Monitoring Service, an EnterpriseView reporting system used for monitoring wide area network performance.
• Recurring Billings: Revenues billed to customers on a consistent monthly or annual schedule.
• RPO: Remaining Performance Obligation, representing the total value of contracted revenue that has not yet been recognized.
• SASE: Secure Access Service Edge, a cloud-delivered solution that combines networking and security services.
• SATBoost: A technology used to enhance and potentially triple bandwidth for satellite-based network connections.
• SD-WAN: Software-Defined Wide Area Network, an architecture that virtualizes networking to improve manageability and security.

Full Conference Call Transcript

Vikrant Ragula: Hi, everyone. Good afternoon, and thank you for joining FatPipe's earnings conference call. Before we begin, I would like to remind everyone that today's discussion may include forward-looking statements within the meaning of the federal securities laws, including the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements regarding FatPipe's expected financial performance, business strategy, growth opportunities, customer demand, product deployment, recurring revenue initiatives, market position and future operating results. These statements are based on management's current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by these statements.

For a discussion of important factors that could affect FatPipe's actual results, please refer to the risk factors and other disclosures contained in the company's filings with the Securities and Exchange Commission, including its most recent annual report, quarterly reports, current reports and other SEC filings. Any forward-looking statements made on today's call speak only as of today's date. Except as required by law, FatPipe undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. And during today's call, we may also discuss certain non-GAAP financial measures.

Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures, where applicable, are included in today's earnings release and related materials available through the company's Investor Relations website and SEC filings. With that, I will turn the call over to management.

Ragula Bhaskar: Good afternoon, everyone. This is Ragula Bhaskar, the CEO of FatPipe Inc. And with me, I have Vikrant and Kanishka. Vikrant is the one who read the safe harbor announcement. He's our VP for Corp Dev and IR. And then I also have with me our Chief Financial Officer, Kanishka. And Tanishka will join me for this presentation. I'm excited to have you all on this call. A lot of exciting things are happening. We had a good quarter. And besides that, we also introduced a new product called Constellation. That is for network monitoring, both on the wide area and on the local area side. And that is an exciting product that is gaining traction.

Orders have already started coming in. We are also working towards positive cash flow. Last quarter, most of our cash went to buy inventory to deliver on the orders we had. And in October, we broke even as a company. So we hope to continue to be a positive cash flow company, as I promised you at the beginning of the year. With that, I would like to move to the financial numbers that you have been waiting for. This is for quarter 2 of this year. Kanishka, please take it away.

Kanishka Ragula: Thank you, Dr. Bhaskar. So, as a summary of the financial results from this quarter, for Q2, we had about $4.8 million of revenue, which was a 22% year-over-year growth. Net income of $1.2 million, which was an increase of $125 million of net income relative to the same quarter last year. Adjusted EBITDA of $1.16 million, which is about a 60% year-over-year increase on the EBITDA side. Gross margins continue to remain healthy at 90%. And earnings per share were $0.09 a share, which was an increase from flat in last year's same quarter. Going into the first half results as a whole for Q1 and Q2 combined on the next slide.

We had 25% year-over-year growth -- apologies, can this move to the next slide? Yes. We had $9.9 million of revenue, which is about 25% year-over-year growth for the 6 months ended September 30, '26. relative to the 6 months ended September 30, '25. Net income grew 250% to $2.43 million. Adjusted EBITDA was up 34% year-over-year to $2.45 million. Gross margin once again remained healthy, 91% blended, and earnings per share was at $0.17 a share, which is up 240% year-over-year. Next slide. Going to our recurring billings. Our recurring billings continued to be strong year-over-year. Relative to the same quarter last year, our recurring billings grew 55% year-over-year.

As a reminder, recurring billings are those billings that are billed regularly either on a monthly or annual basis. This represents those billings that were collected in the quarter for the 3 months ended September 30, 2026. And with that, that's the summary of the financial results. I'll pass it back to Dr. Bhaskar to go over product and customer.

Ragula Bhaskar: Thank you, Kanishka. Ladies and gentlemen, when you go to the next slide, Vikrant, I would like to talk to you about the company. As we always wanted to be, and we'll continue to strive to be, we always want to be the #1 product in our business and also provide the #1 support to our customers so that we have happy customers. And the entire emphasis here is to make this customer experience the best that can be in the networking business. So with that goal in mind, we have always continued to do well in that arena. And the customer feedback -- this is one of the charts from a company called InfoTech.

I believe it's a $4 billion marketing company. As you can see, we are way ahead of Cisco, Meraki, VMware, and everybody else in the game. And that is because we actually focus on the customer. If you look at Gartner survey, another company, if you look at independent surveys of customers, we are always rated #1 over all the other majors in every single category. And that will continue to be our goal. In terms of what we plan to do for the next few quarters, keep up the same production, work on creating more sales. At the beginning of the year, our plan was to have 36 salespeople by the end of the year. We are midway there.

We are at 30 salespeople net, and we plan to add 6 more by the end of March, which is our fiscal year. And in terms of product, as I mentioned, Constellation was a very good product that we brought out. To give you an idea of what Constellation does, we can monitor every single aspect of your network, every single device in your network, down to every single port in your switch and your fiber connection. The advantage of that is, from a customer perspective, they don't have to go to multiple vendors. In a single stack, we are able to provide you with cybersecurity, FatPipe, of course, our base product, and complete network analysis.

Now, as a customer, what is the advantage? You have all the data you need, networking data, cybersecurity data and the entire company devices, inventory, in fact, including all the software you have, when the software are coming up for renewals, which software is vulnerable. We can give you a list of software that has not been updated. So essentially, it's one stop, one call, that's all. And that's our goal: to achieve network singularity, and we are headed there. That's our biggest achievement in terms of new product last quarter. At the beginning of this, in October, we acquired a small software technology company, and we'll continue to look for more companies to add.

We did not raise any money to buy that company. We are doing it with our internal resources. And again, we had to acquire quite a bit of equipment and hardware to meet our sales obligations. We are doing that. And in October, we broke even, and we expect to continue to break even and make positive cash flow going forward as we continue to hire people and expand our sales motions. I don't have any other things to share with you. Vikrant, are there any questions that I can answer? If anyone wants to ask questions, please do raise your hand and ask questions. And Vikrant, could you transcribe for me.

Vikrant Ragula: Yes. So we have some questions from our equity analysts. So I will start off by pulling in Lisa Thompson to share her question. I enabled her microphone and camera.

Lisa Thompson: Thank you. So just to go back to Constellation, can you tell us a little bit more about how people are charged for that? Do you have to have already bought cybersecurity? Or is this something you can buy without having all the other pieces? How does this work?

Ragula Bhaskar: Thank you, Lisa, for joining us on this call. Constellation can be bought as part of our FatPipe offering and can also be bought as an independent product. So we are giving customers that option. And so which way if they want it on-prem or if they want it in the cloud, we are happy to do it either way.

Lisa Thompson: And can you buy it right away? Do you have to wait until your contract ends?

Ragula Bhaskar: Yes. You can buy it right away. It sits quietly in the network, and it monitors the network, generates alerts, generates alarms, and generates reports for you. It's all in real time. And the way we charge is by monitored devices. So if you have 100 IPs, we will monitor them. We'll charge you for those 100 monitored IPs.

Lisa Thompson: Can you tell me about this little software company you bought? What does that add to you?

Ragula Bhaskar: We have a division called FatPipe Technologies, which provides software services and technology services. And this company is in the same area. So we thought it would be good to add to that market and that segment.

Lisa Thompson: And how is this quarter looking? Is there seasonality in the business? Or what should we think about the December quarter?

Ragula Bhaskar: Yes. Good question. Our goal is always to do 18% growth rate and 18% EBITDA. So we will work very hard to achieve that minimum base. The seasonality can be when the holidays kick in sometimes. But this time Christmas, I believe, is on Friday or Thursday, which means the next week after that would be a clean week for us to continue to close deals.

Lisa Thompson: I guess my last question is a big picture thing. So recently, Fortinet had controversies going on about their quarter. Can you compare and contrast how you're not them?

Ragula Bhaskar: Fortinet is a massive company. So they are affected. They have a lot more wins in different parts of their business in the world. We are focused on our market, and we are not, hopefully, going to see any of the issues that Fortinet has. And we are also constantly developing new products. As you can see, we introduced cybersecurity last year. We are introducing Constellation this year. Our goal is to be, like I said, the best product company out there and have a good name in the market, have a good name with customers. You can't say that about some of the other big companies.

Vikrant Ragula: I will now enable James Kisner to be able to participate as well.

James Kisner: So just a couple of quick ones. I guess talk about the sales force ramp and what you expect there. How long is it going to take, you think, for those folks to be productive? Like, what does the ramp of a new salesperson look like in your company, do you think?

Ragula Bhaskar: Typically, a salesperson should become break-even to profitable in about 3 to 6 months. Some of them who are in the larger deals business will take about 6 to 9 months. That's typical. But if they have a great pipeline, we'll work with them. If they're not able to create a pipeline, then we cut loose. Unfortunately, we have to do that. Yes. And we are hiring senior salespeople who have experience, who have a Rolodex. So we expect them to come with a partner base. So if they're not able to develop that, convert that partner relationship into sales, then we are not the right company for them.

James Kisner: So I think you have a product that can hunt pretty well, too. So that should help. I think a $7 million education contract that you were expecting to land. Just maybe you can kind of update on that. And just in general, is that contract eventually open up other public sector opportunities?

Ragula Bhaskar: It does. It has, and it is. We are very fortunate to land a big contract, and we are executing on that. So that does get the word out that we can be trusted with a large contract, and we have the resources, the means, and the expertise to execute. So we did land a couple more deals in different parts of the country, and we are looking forward to this coming year to do the same.

Vikrant Ragula: And now I'll let Derek Greenberg ask his questions.

Unknown Analyst: I wanted to start off just by asking about how we can think of revenue this quarter in terms of new customers versus renewals. If you had anything you could share on that?

Ragula Bhaskar: New customers: we are adding new customers. The quarter is still young. We have 60 more days to go, and the pipeline is looking good. We are continuing to build on the pipeline. In terms of renewals, we have a good renewal clip rate. As the company base of customers increases, the renewal will be a significant and it is already, but it will be a significant portion of our business. And our goal is, like I said, to keep the customers happy. If I can keep you happy and you're happy with the product and you're happy with the service, there is no reason for you to walk away from us.

Remember that every single customer of ours is a mission-critical customer. We run cities, counties, police, emergency services, hospitals- you name it, big school systems. I mean, school systems with 50,000 and 100,000 students. That requires expertise, and we have been developing that expertise over the last 25 years. So we know how to take care of those customers. And if the network has an issue, we are on it immediately, and we try to solve it. We have deep expertise in getting into a customer's network and figuring it out really fast.

Unknown Analyst: And then I was curious what you're seeing at renewal in terms of attach rates for your cybersecurity offerings, if you're seeing good uptake there, if there's anything you can share?

Ragula Bhaskar: We are seeing faster reception to our constellation network management and land management product. And I think part of that is because many customers, as I said in the earlier presentation, have this group of 4 or 5 different cybersecurity products from 4 or 5 different vendors with 3- to 5-year cycles. Therefore, moving away from those contracts takes a little longer. On the other hand, constellation is easier to install. We are not replacing any system in almost all cases, or the contracts are coming up on an annual basis, so we are able to make presentations. We have, for instance, a city in Tennessee. We have a customer who is a bank.

So we are finding that it's a lot easier to sell. And I also believe that product is a very exciting product. It has a lot of exciting features. It's like Raghu peg sauce, if you will. It's in there. The features are in there. And so any time you have a question about Can I monitor this, my answer is yes, we can. And that people like that they can look at every look and training of that network. So that, I believe, is also going to help us with our revenues going forward. And we are pushing it to our current customers.

Our current customers trust us, and it's a lot easier to explain to them the value of another feature in the same product, which they buy separately, but it's a lot easier than saying I'm a new guy in.

Unknown Analyst: One more for me, and then I'll pass it along. I was wondering if you could just talk about how some of your newer distribution and reseller partnerships are progressing, particularly TD SYNNEX and Carasoft.

Ragula Bhaskar: Actually, the best person to answer that is Vikrant. Vikram has been working with TD SYNNEX and Carasoft, and Howard with our sales teams. So, Vikrant, I don't need to put you on the spot, but if you can answer those questions since you're closer to the actuals that you travel to all these partners.

Vikrant Ragula: Yes. So as Dr. Bastar mentioned, we've been seeing good success with our partners, including with TD SYNNEX and Carasoft. As with our partnership, it takes a little bit of time to grow it. But in the recent quarter, we have seen more wins coming in with these partners on different proposals to government customers that are looking to purchase solutions. So we're seeing good traction and continued wins, and the pipeline from these partners is growing. So we are very excited about the partnerships and continue to invest more resources to further grow the revenue and opportunities to work with these partners.

Ragula Bhaskar: And I think this week, you trained like 72 salespeople at one of the partners. And last month, one of you traveled to the partners and made on-site presentations. And then we also have another partner called Jenny in Ohio, and our sales manager there has been visiting them and training them. And what is nice is we get very good reception. We are in a business where we have a good product, and our service quality is well known. And therefore, the salespeople are looking for products that can help them sell. The most important thing is how you can help your partners' salespeople sell and achieve their quota.

And a lot of that involves training and providing them the resources and the pricing they need to win the business.

Vikrant Ragula: And then I will bring on Nehal from Northland to also ask his questions.

Nehal Chokshi: Can you go back to the Billings slide? So yes, it looks like your recurring billings ticked up pretty significantly Q-o-Q here from $2.4 million to $2.9 million. Can you talk about the driver of that big Q-o-Q uptick?

Ragula Bhaskar: Primarily, as we get more new business and circuit products, we have been billing. And then the current customer billing is a layered approach. You have multiple layers of customers every quarter. And as the billings on each of those customers start, we are seeing growth in the billings. And for the bigger deals, we have been deploying bigger and bigger deals or installations. And therefore, the monthly billing on those is significantly higher in terms of dollar value. So those are the reasons.

Nehal Chokshi: So the driver of this big Q-over-Q uptick has been a ramp in some large customers?

Ragula Bhaskar: Yes. Also recurring revenue streams from renewals that are also happening. Both. Actually, if I were to think through it, recurring and renewals will continue to add to the baseline of the previous quarter. So a lot of that is new business. Yes.

Nehal Chokshi: And so that $7 million order, how much is it contributing to that $0.5 million Q-o-Q increase in recurring billings?

Ragula Bhaskar: It has started contributing. I think about 3 months ago, it started happening. Yes.

Nehal Chokshi: It will add about $300,000 a quarter.

Ragula Bhaskar: $300,000 a quarter; it should start contributing. And then we had other additional deals; we got bigger deals. So they are also contributing.

Nehal Chokshi: Okay. And is that $300,000 a quarter the full run rate of that $7 million order? Or is there more still to be deployed?

Ragula Bhaskar: At full run rate, it will be about $1.18 million, approximately $118,000 a month. So that will be about $350,000 a quarter.

Nehal Chokshi: And can you give us some color on how bookings proceeded during the September quarter?

Ragula Bhaskar: September quarter, Kanishka, do you happen to have those specific numbers?

Kanishka Ragula: Yes. The top-line revenue as reported on a GAAP basis is largely reflective of the new bookings for the quarter. So that continued to be healthy year-over-year. So it did continue to grow. I can follow up with the exact growth on the bookings, but overall, top-line revenue was up 22% to $4.83 million for the quarter, and the majority of that was driven by new bookings.

Nehal Chokshi: Okay. So product RPO would be flattish Q-o-Q from $2.2 million in the June quarter?

Kanishka Ragula: Yes. So product RPO continued to grow. However, as we mentioned, the remaining performance obligation is slightly different relative to the contract receivables. Remaining performance obligations and deferred revenue are both partially related to our legacy book of customers in addition to the net new bookings. So remaining performance obligation remaining flat quarter-over-quarter has the benefit of the net new bookings from our recurring customers, but also, as we shift over the legacy customers from the more one-time term license billing to a more recurring basis, does see a decline from that basis. So remaining performance obligation overall is relatively flat because of that.

Nehal Chokshi: Well, fantastic acceleration in the buildings here. Congratulations.

Vikrant Ragula: And then I think the last question we have in the chat comes from Rudy regarding 2 parts. First is, how is SATBoost coming along as far as interest from prospective customers? And then the second question is, are we still acquiring former VeloCloud customers? So, Dr. Bhaskar, would you like to answer those?

Ragula Bhaskar: Yes. SATBoost, it hasn't taken off as fast as we wanted. We are specking in. We have a lot of interest. We haven't done some big deals in SATBoost, but we do have customers using satellite as a backup solution. SATBoost is the one where we can triple the bandwidth. I guess most of the customers are using satellites for backup, not speed. So that hasn't taken off as much. However, in terms of VeloCloud replacements, we are doing well. I think we did 2 or 3 bigger deals recently. And then we have a number of quotations out there for replacements whenever those contracts get over. So yes, we are replacing a significant number of VeloCloud customers.

Kanishka Ragula: And then, Dr. Bhaskar, if I may add on regarding SATBoost. This is more of a recent development in the past months, but we have a number of customers with 40, 50-plus sites who are deploying satellite in addition to terrestrial transport. So we have seen more reception for SATBoost recently, especially as SpaceX has continued to deploy their Starlink constellation and customers have begun to use that for their primary transport. And this is happening in the last 2 weeks. And I think that's it for the time we have on the earnings call. Vikrant, I'll pass it back to you.

Ragula Bhaskar: Somebody raised their hand. Did somebody raise their hand just now?

Kanishka Ragula: I think I see Nehal's hand up.

Vikrant Ragula: Yes. With that, I believe we are at the end of the Q2 FatPipe earnings call. So unless there are any final comments -- or sorry, Dr. Bhaskar?

Ragula Bhaskar: I see Nehal's hand up still.

Nehal Chokshi: No, no, that's an accident. Sorry about that.

Ragula Bhaskar: Okay. In terms of the next several quarters ahead, we will continue to work as hard as we can to keep our sales momentum up, our profitability up, and start putting cash in the bank. We did refinance one of our SBA loans that we had before the IPO. So that helps us reduce our interest rate by about 1.85%. And then we also got a credit line of $1.5 million from a local bank here. And so that gives us additional resources if we need to drop on them. We will continue to buy hardware for fulfilling our sales obligations or deployments. But overall, we'll continue to keep the pace.

By the end of March, we should have about 36 salespeople, and the goal for the following year is about 48 salespeople.

Vikrant Ragula: So with that, that should be the end of the FatPipe fiscal year Q2 earnings call. So thank you, everyone, for joining and learning more about the fiscal results of FatPipe and how we've been doing this quarter and going forward. And we will see you again at the Q3 financial results update.

Ragula Bhaskar: Thank you, everyone. I appreciate you taking the time to join us. Thanks, everyone.

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