On Thursday, Fatpipe (NASDAQ:FATN) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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The full earnings call is available at https://events.teams.microsoft.com/event/b22a6837-3591-42b5-9333-afaa81e42fd4@51ec01b9-4755-406d-a5cf-be0d14b56e66/registration
Summary
Fatpipe reported a 27% increase in sales and a 65% rise in income, with earnings per share growing from 5 cents to 9 cents year-over-year, while maintaining a high gross margin of 92-93%.
The company highlighted strategic growth through channel partnerships, notably with TD Synnex, and is focusing on larger deal sizes and expanding its partner network.
Fatpipe's VeloCloud conversion program is successfully attracting new customers from competitors like Cisco and VMware, and the company won a $7 million deal partly booked in the current quarter.
The company is investing significantly in marketing and partner development, evidenced by increased participation in events like ChannelVision, and plans to expand its sales team from 24 to 36-38 by the end of the fiscal year.
Fatpipe is enhancing its product portfolio with new cybersecurity offerings and leveraging AI for network and content management, with strong customer satisfaction reflected in high Gartner ratings.
Full Transcript
Vikrant Kanishka, Director of Corp Dev and Investor Relations
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 development, 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.
Bhaskar Ragula, Owner
Thank you very much, Vikrant. I appreciate it. Vikrant is our Director of Corp Dev and Investor Relations. Sitting along with me in the room today is Sanch Datta. She's the co‑founder of the company, CTO, and now the President of the company. We like to let all of you know that Sanch is a major player in this company directing all of engineering and also assisting in customer relationships and product management. Today, as you can see on the screen.
Vikrant, is this screen being shared?
Vikrant Kanishka, Director of Corp Dev and Investor Relations
Yes it is.
Bhaskar Ragula, Owner
Thank you. So our sales has grown about 27% and income has gone up around 65%. And we are happy to let you know that the earnings per share has gone up to 9 cents a share from 5 cents a share the previous year. And as we grow and we start doing bigger deals, obviously the margin falls a little bit but not by a lot. It's still around 92–93%. So overall we had a good quarter coming on the back of a previously very large quarter. We are very thankful to our employees, our partners, and our customers who are continuing to support us and in our endeavor to be the very best company in the space in terms of product and in terms of support and management of customer relationships. As you'll see in the next slide, our products have been recognized for their contributions to the technology space. And this is ChannelVision, the largest channel partner show in the United States or probably in the world. And we got award for our product offering. We have been able to successfully convert customers from other vendors such as VeloCloud. We have an active VeloCloud conversion program. VeloCloud is a company that became part of two different large companies and since then we have been able to win customers who are using those products.
I'll show you as a sample here. This is Infotech. They are about a 4000‑person data analytics company. And as you can see, for the third or fourth year in a row our products have distinguished themselves sharply compared to everybody else, whether Cisco, VMware, or any of the other big boys. And on the right you see in every category we have a very good rating, top of the chart. We also like to pick one competitor and show you the comparison in a Gartner survey.
This is a Gartner survey of customers, end customers. We have not paid Gartner for any of this. These are pure rankings by customers. As you can see here, we beat out Cisco's products in the space and 97% of customers said they will recommend Fatpipe. So this gives you an idea of our product offering and what we do in the space. We have been fortunate. We have been developing new products. We earlier released a cybersecurity product and now that's going into various customers' quotations and more marketing.
And this quarter is one of the first quarters where we spent a significant amount of money in developing our partners, marketing, trade shows, and related travel. And that is helping us a lot. For instance, in Las Vegas at ChannelVision we hosted a happy hour at one of the bars and we thought we needed only a quarter of the space. We ended up occupying the entire bar and about 120 people, partners, showed up. And that is becoming an event by itself because last year we had 80 and the previous year we had about 40.
So we are finding that our name is getting out there which also means that more partnerships to come. With that I will open it up for any questions. Vikrant Kanishka, if you want to add any more to this conversation,
Vikrant Kanishka, Director of Corp Dev and Investor Relations
If you have any questions, please feel free to put them in chat and raise your hand and we can answer them live. Looks like the first question is coming from Lisa Thompson from Zacks. Let me see if I can bring you into the room. Lisa, you are now unmuted. Please ask your question.
Lisa Thompson, Analyst at Zacks
Gotta figure it out now. Hi. So you had a great— You had a great quarter. Could you tell us where the revenues came from? Were there a bunch of large contracts? I know you had the second half of one of them. Are the channel partners doing better? What's happening out there?
Bhaskar Ragula, Owner
We are clicking on all cylinders, both in terms of market segments as well as various channel partners. As you know, we have started investing in the channel partner program. We signed up TD Synnex—used to be called Tech Data—the largest distributor in the world for technology. And then the size of the deals have gone up. And this is partly because as we develop closer relationships and trust with the partner, the partners are taking us to bigger deals and that started happening.
So it's a combination of deal size increasing, more deals, more markets, and more partners bringing in deals. And we expect the channel partners to increase the number and size of deals.
Lisa Thompson, Analyst at Zacks
So is the percent of revenue going to shift more to partners or is direct sales also growing?
Bhaskar Ragula, Owner
We don't do any direct sales. I can't say any—there's always a few where the customers want to deal with us directly. But almost all our sales come through partners and that is the strategy, that partners will be our feet on the street.
Lisa Thompson, Analyst at Zacks
And one last question is, you did announce a $7 million deal a few weeks ago. How much of that is going to get booked in the September quarter?
Bhaskar Ragula, Owner
I will have to find that exact number, but we can get back to you on that. It's probably about 30–35%. Probably about 30–35% will be booked in this quarter as we deliver those units. In fact, I saw a whole bunch of units going out today.
Lisa Thompson, Analyst at Zacks
Oh, great. Okay, that's close enough. Thank you.
Bhaskar Ragula, Owner
Thank you.
Vikrant Kanishka, Director of Corp Dev and Investor Relations
Thank you, Lisa. I will move you back into attendee for now. Next up, we have two questions—one in the chat and Nehal's raising his hand. I'll have Nehal ask his questions first, then I will answer the question in chat. So, Nehal, I am making you a presenter, so you should be able to unmute and ask the question. Nehal, good afternoon. And for folks who do not know, Nehal Nahal is ranked 185 out of 12,000 analysts in the country and he works for Northland Securities.
Nehal Nahal, Analyst at Northland Securities
Thank you. Thank you. So, congratulations from me on a good quarter here. Can you give us a sense as far as what were bookings in the June quarter?
Bhaskar Ragula, Owner
Can you repeat that, Nehal?
Nehal Nahal, Analyst at Northland Securities
Can you give us a sense as to what were the bookings in the June quarter?
Bhaskar Ragula, Owner
What were the bookings? Yes, we can. Our bookings is a significantly higher number. However, it is a really forward-looking statement. So at this point I would like to answer that question one‑on‑one rather than— So what we do, Nehal, as we get the orders and we start getting the units in and assigning it to customers. So there's always a lag between bookings and actual revenue recognition. So there's a little bit of a lag. That we didn't fulfill in June, or ending June, they'll be starting rolling over to this quarter, the present.
Nehal Nahal, Analyst at Northland Securities
So the $7 million education win disclosed a couple of weeks ago and discussed already—that was booked within the June quarter, is that correct?
Bhaskar Ragula, Owner
Not all of it. We book as we get the orders processed for and assigned to the customer. The products assigned to customer, either shipped or installed, are assigned.
Nehal Nahal, Analyst at Northland Securities
So can you discuss what are the drivers for winning this, you know, very material order?
Bhaskar Ragula, Owner
Working closely with the partner. It was an RFP and the partner chose us over a major incumbent and we just met all the technical criteria and of course made sure we gave a good price to the partner to win the deal. So essentially product and pricing.
Nehal Nahal, Analyst at Northland Securities
Okay, great. Sorry, go ahead please.
Vikrant Kanishka, Director of Corp Dev and Investor Relations
Oh, yeah, sorry. One additional detail I wanted to add is that the incumbents who we were replacing as well as the competitors we won against—those companies have recently been acquired. Juniper was acquired by Hewlett Packard Enterprise and VeloCloud was reacquired for the third time in five years by Arista. So as these competitive products have been acquired, support from OEM has dropped significantly. So customers choose Fatpipe because we still provide first‑party support and market‑leading support that customers appreciate.
Nehal Nahal, Analyst at Northland Securities
Guy. Great. And you were disclosing monthly recurring revenue for the past two quarters, which was up 50% year over year. Are you disclosing it again this quarter and if so, what is it?
Bhaskar Ragula, Owner
Good point. I didn't check the actual numbers. We will be posting it as we get the numbers together. I don't think we disclosed that this quarter. Yeah, it does go up. Every quarter it goes up, as you can imagine, as we have new customers being added and renewals happening. Yeah, it does go up.
Nehal Nahal, Analyst at Northland Securities
Okay. And then finally, can you give us an update on where you are in sales headcount and where you expect to be at the end of the fiscal year?
Bhaskar Ragula, Owner
Yeah, I think we are now up to 30 plus—30, 31—so we were like 24 at the end of March, so we have about five more people, and then our goal is, as we had stated before, to get to 36 people by the end of fiscal. So we will be recruiting more people. We actually added two, three people a couple of weeks ago and then we would be adding another five, six people by the end of December. And if there's any stragglers or netting out anybody we let go, by end of March we'll be at 36 to 38.
So we are on track as we projected last year.
Nehal Nahal, Analyst at Northland Securities
Okay, great. Can you just remind us what are your sales quota expectations, and presumably you are seeing a ramp that's satisfactory that is driving this healthy pace of sales rep additions?
Bhaskar Ragula, Owner
As we add the sales team, their quotas—$2 million. The first year we can expect between 700 and a million. Those who have a good Rolodex will hit that number faster, but at the end of the first year they all become very productive. And we always are evaluating those who are not very productive and helping them get to be productive or having them leave. So it's a simple concept there, and the persons who have a good Rolodex and who have applied themselves very well to the job are doing well.
Does that answer? Thank you. I don't have a specific number.
Nehal Nahal, Analyst at Northland Securities
No, you answered your question beautifully. Thank you.
Bhaskar Ragula, Owner
Thank you.
Nehal Nahal, Analyst at Northland Securities
Congratulations.
Bhaskar Ragula, Owner
Thank you, sir.
Vikrant Kanishka, Director of Corp Dev and Investor Relations
Thank you. Nehal. Yes, going into the question chat. Got a question from Rudy. Question being: SatBoost is a latency game-changer, especially in the government space where many agencies are operating in low‑power, non‑terrestrial environments. Have there been any serious inquiries about adopting it? To answer the question, Rudy, yes. We've already had deployment with state health agencies, with supermarkets, and with other—call it rurally distributed—customers.
These deployments have already happened and customers are live and appreciating use of the SatBoost product. In terms of the sales pipeline, I obviously cannot talk too much about the sales pipeline due to it being forward‑looking statements. However, we are seeing strong interest in the SatBoost product from a variety of end customers across both public sector and private sector. And as we get more sales and specific case studies regarding SatBoost, we will continue to post those on a regular basis either on the website as case studies or we will mention it in future earnings calls.
Bhaskar Ragula, Owner
And also, in fact, just today we had a call with a major partner about the product and its application. Interestingly, a variant of the same product can be also applied for 5G, so we can speed up 5G performance and connectivity. So we had a call with a partner who's looking at both for satellite as well as for 5G. Anything wireless, really—in a generic way, anything wireless. Because of our technology, we can improve the performance of these transmission media—or lack of media here—we are able to improve the quality of this transmission as well as the speed of the transmission.
So there is very good traction. Short answer is yes. And those of you who are investors, we appreciate you sending us leads. I know a couple of investors sent us leads saying, hey, you need to talk to this guy and that guy. So those of you who are on the call, if you know any potential opportunities, we would very much appreciate you sending us these leads. We'll take leads from anyone, and especially our investors who have a very vested financial interest in this company.
We are all a big family for us. And what is interesting is some of our original investors, they still have held onto their shares and they're accumulating shares every time the stock drops. So you can imagine that we have a big ecosystem that supports Fatpipe.
Vikrant Kanishka, Director of Corp Dev and Investor Relations
Thanks, Bhaskar. And one Q&A we've received is: Fatpipe reported strong revenue growth and profitability in Q1. How should investors think about the balance between growth and operating discipline going forward?
Bhaskar Ragula, Owner
It's a balancing act, right? When there's growth, you are investing more in growth. Like I think it was Nehal or somebody had told me, focus on growth and it's okay for margins to come down. And we are doing that, as you can see here. And also last quarter we invested a significant amount of money in inventory because when you get these big orders you have to lock in the inventory. And so we locked in the inventory, we spent buying the inventory and also buying RAMs and SSDs and paying it forward in terms of buying those products with a fixed price, and marketing.
I mean we spent nearly $400,000 last quarter on marketing. The reason is that's the time when a lot of trade shows happen. Now this quarter we won't have much marketing expenses, but we are investing in all these opportunities to increase the growth of the company.
Vikrant Kanishka, Director of Corp Dev and Investor Relations
Thank you, Dr. Bhaskar. An additional question we have is: Where are you seeing success in the market? Are there any areas that you've been seeing notable wins in or continued momentum?
Bhaskar Ragula, Owner
Very similar to the answer that I gave to Lisa: across the board. There are some segments where the deal sizes are bigger, so obviously we tend to focus on those kind of deals. But other than that, we are servicing the economy regardless of whether it's a hospital or retail store or a company of manufacturing, financial, credit unions—just across the board.
Vikrant Kanishka, Director of Corp Dev and Investor Relations
Thank you, Dr. Bhaskar. And one question is someone is inquiring about our VeloCloud replacement program that we had announced in press releases in the past. How is that VeloCloud replacement program coming along?
Bhaskar Ragula, Owner
It's actually coming along well. We have enough number of deals that we have closed to turn those customers to our side and we have a number of opportunities we are working on. And the way this works is as more and more of those customers—more marketing happens to our partners and bringing awareness—and as time goes by, when those deals come up for renewals, we'll see more happening. We are not just going after VeloCloud. As you know, some of the big companies don't do a great job of taking care of their customers or partners.
There's one company that takes three weeks to give you a quotation to a partner. So we just snagged that partner and that customer. So the whole important thing is, being a smaller company, we are able to produce products faster, features faster, respond to our partners faster. So we are doing all of that at the same time. Like the $7 million order, we displaced a very large company. So it was all about product and pricing and the fact that our partners know we are very responsive.
And all of that is captured in the awards that Infotech gives us, or the customer feedback on Gartner's website. All of that is captured.
Vikrant Kanishka, Director of Corp Dev and Investor Relations
And then one question we got in chat was describing the equipment spend edge we have over competitors and how this edge is defensible. So the way Chad would characterize that is Fatpipe is first and foremost a software company. The actual appliances we sell are commodity hardware and we load our proprietary software onto that. So in that vein, some of our competitors have seen significant supply chain price increases as a result of competing needs from their semiconductor manufacturers overseas where they're now competing with the standard GPU and data center companies for allocation of fab times.
Fatpipe has continued to use our commodity supply chain for our equipment, which allows us to see less price increases and less increased lead times than what our competitors have seen, which has allowed us to maintain prices as is in terms of the customer‑facing prices and partner‑facing prices, while competitors have had to increase their prices, and we haven't had any increased lead times as a result. So that's for both order fulfillment and in general supply chain.
So in general we have that advantage versus our competitors given we are using commodity hardware and loading our proprietary software onto it. Thanks everyone. And if you have any other questions, please feel free to send them to me or put them in Q&A or in chat. And one question is: What is Fatpipe doing in AI? Dr. Bhaskar,
Bhaskar Ragula, Owner
Fatpipe has added AI in all aspects of our business: software coding, fulfillment services, software for fulfillment—pretty much everything. In terms of the product, we are a highly deterministic product. We use machine learning. When you say AI, machine learning is a subset of that. And machine learning enables us to do the fastest routing using spanning tree algorithms and allowing for jitter, latency, and everything else. Our job is to transmit packets from point A to point B in the fastest route possible with the least latency.
And we do that better than everybody else. Now, you cannot apply AI to a very deterministic problem. Where AI comes in is when you have more fuzziness. As you all know, fuzzy logic is where AI came from originally. So we are now looking at how to generate reports. If you look at HPE and others, their application of AI in the business has been about creating reports using natural language questions. That is the easiest thing to do, right? It's not the smartest application of AI.
But where we need to apply AI is when we can see how we can take a whole network and then see how to release congestions in the network. That is what we are working on. That is a lot more harder in a real‑time space than anything else. But I also told you how we have applied AI to content—graphical content. AI is perfect for that because it's fuzzy. When I say fuzzy, meaning you could have a person in a bikini versus a person who's naked, and the AI has to distinguish between.
We have developed the software for that. So if you're a school and you want to block graphical images or sexual content, we have the AI technology applied for that. And that is the perfect example of a perfect application of AI—totally fuzzy logic content that cannot be just described deterministically. And our software is doing a great job on that, and that will be applicable more to schools. But obviously I have to charge more for that.
Vikrant Kanishka, Director of Corp Dev and Investor Relations
And as CEO, what are the two or three priorities you are most focused on for the rest of the year?
Bhaskar Ragula, Owner
Okay, I'm going to be a little facetious here. Number one is sales. Number two is sales. Number three, go to the first. And number one and number two, it's all focused on sales, performance, financial discipline, and trying to help the stock price go up. It's just focus on sales, guys. That's all I tell my team. We have good products, we have a good organization in terms of customer support. So the only thing we need to focus on is increasing our sales and keeping our margins as much as possible.
Vikrant Kanishka, Director of Corp Dev and Investor Relations
And one additional question is: Do you have any updates on Fatpipe Security360 cybersecurity solution that you have mentioned in the past?
Bhaskar Ragula, Owner
We have completed the product, we have fully tested, load‑tested the product, and we have started giving it out to customers. And so it's been not as fast to start, but it's happening now. Like anything, customers will change the current products with our product as those contracts come to an end. So that is what we are focused on—finding out when the contracts are coming to an end then pushing our product. Like I again said, our products are a lot more comprehensive.
Total 360 is designed to block any type of gaps between when you buy three or four different products from four different vendors—there are gaps, cybersecurity gaps. By us giving a single product that covers all aspects of cybersecurity, we give you a total cocoon in which you can operate your business. And again, for the price of a latte per employee per month you get everything, including endpoint detection and response, which itself costs about $5 from CrowdStrike.
But then I give you all the other aspects of cybersecurity.
Vikrant Kanishka, Director of Corp Dev and Investor Relations
Great. I think we are at 3 pm.
Bhaskar Ragula, Owner
Thank you everyone. I really appreciate you taking the time to listen to this presentation and also being a shareholder. It's a great privilege to have you as a shareholder.
Vikrant Kanishka, Director of Corp Dev and Investor Relations
And if you have any additional questions, please feel free to email the investor relations email. I believe it is [email protected] and that email can also be found on the website. And we'll be happy to respond to your questions over email if you weren't able to get them answered on today's call. And with that, thank you everyone for joining the first quarter fiscal '27 Fatpipe earnings call. We hope you all have a great rest of your day. Thank you everyone.
Thank you.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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