Latest / WTR Small-Cap Spotlight / FatPipe (FATN): One Call, That’s Al"l: How a Small SD-WAN Vendor Beats the "Big Boys"

Transcript

FatPipe (FATN): One Call, That’s Al"l: How a Small SD-WAN Vendor Beats the "Big Boys" · WTR Small-Cap Spotlight

• 0:00
  SPEAKER_01: Welcome to the WTR Small Cap Spotlight Podcast.
• 0:04
  SPEAKER_01: I'm your host, Tim Gerdeman, co-founder of Water Tower Research.
• 0:08
  SPEAKER_01: Today I'm joined by Dr.
• 0:10
  SPEAKER_01: Baskar Ragula, co-founder, chairman, and CEO of FatPipe, listed on NASDAQ in April of 2025 under ticker symbol F-A-TN.
• 0:20
  SPEAKER_01: Fatpipe makes software that combines single data lines from multiple carriers into a single secure network, a category known as SD-WAN, and has since added cybersecurity and network monitoring.
• 0:33
  SPEAKER_01: Based in Salt Lake City, the company sells almost entirely through channel partners.
• 0:38
  SPEAKER_01: Also joining us is my WTR equity research colleague, James Kisner.
• 0:42
  SPEAKER_01: Bascar and James, good morning and thank you to uh for joining us, rather.
• 0:46
  SPEAKER_00: Good morning to you, Tim.
• 0:48
  SPEAKER_00: How's your day going?
• 0:49
  SPEAKER_01: Going well.
• 0:51
  SPEAKER_01: Bascar, for investors new to the Fatpipe story, please provide them with a 30,000-foot overview of the firm's business model to include highlighting what problems FatPipe solves for its customers traditionally.
• 1:04
  SPEAKER_00: Thank you for the question, Tim.
• 1:05
  SPEAKER_00: I appreciate it.
• 1:06
  SPEAKER_00: Fatpipe is a full-spectrum networking company making routers, firewalls, SD-WAN, cybersecurity, and network visibility products in a single stack, meaning customers don't have to buy bits and pieces of hardware and software for various vendors and cobble together a working network.
• 1:28
  SPEAKER_00: We also provide a co-managed service so that we can monitor the customer's network and take remedial action.
• 1:36
  SPEAKER_00: This is especially valuable for SMB customers, our target market, who can't afford expensive IT folks, but can monitor all aspects of the network on a single screen, making it easy to manage that network.
• 1:52
  SPEAKER_01: Great.
• 1:52
  SPEAKER_01: Thank you for that overview.
• 1:53
  SPEAKER_01: And I'll now turn it over to James Kisner to ask a few questions.
• 1:56
  unknown: All right.
• 1:57
  SPEAKER_02: Thanks, Tim.
• 1:57
  SPEAKER_02: And then thanks, Baskar, again, for joining us.
• 1:59
  SPEAKER_02: So you compete with Cisco, HPE, Arista, big players.
• 2:08
  SPEAKER_02: But you were named a data quadrant champion in there in a uh 2026 SD-Win Bid Market report from InfoTech.
• 2:15
  SPEAKER_02: So just common how a company your size wins head to head against those larger players.
• 2:21
  SPEAKER_00: Thank you for the question, James.
• 2:22
  SPEAKER_00: There are two things we are very good at.
• 2:24
  SPEAKER_00: Number one, product.
• 2:26
  SPEAKER_00: We arguably make the very best product in the market.
• 2:29
  SPEAKER_00: And two, we provide the very best support in the business.
• 2:33
  SPEAKER_00: Not because I say so, but because all the customer surveys say so.
• 2:39
  SPEAKER_00: What call that's all?
• 2:40
  SPEAKER_00: When you call us as a customer, we answer the phone.
• 2:44
  SPEAKER_00: We don't send it to a third-party outsourced agency.
• 2:48
  SPEAKER_00: And then we figure out what the network issue is.
• 2:52
  SPEAKER_00: We don't say things like, it's not my problem, go call Palo Alto or Cisco.
• 2:57
  SPEAKER_00: We get into the network, we look at the problem and we fix the problem.
• 3:01
  SPEAKER_00: We tell the customer this is what you need to do to make that system work.
• 3:05
  SPEAKER_00: Customers like that.
• 3:07
  SPEAKER_00: And also we are small, we are nimble, and we are responsive to customer needs.
• 3:12
  SPEAKER_00: So that is how we win business against the big boys.
• 3:16
  SPEAKER_02: That makes sense.
• 3:17
  SPEAKER_02: Sounds like a bit of a white glove approach for your customers.
• 3:20
  SPEAKER_02: I'm sure they love that.
• 3:22
  SPEAKER_02: So I understand that nearly all of your sales go through partners, and you announced partnerships with uh Kerasoft in August and Howard Technology Solutions in September.
• 3:31
  SPEAKER_02: So, you know, what does it take to make a new partner productive?
• 3:34
  SPEAKER_02: And what does Kerasoft open up in the public sector for you?
• 3:38
  SPEAKER_00: Both these companies, Karasoft and Howard, are well-known names in the industry.
• 3:44
  SPEAKER_00: What they're looking for in a partner like us is someone who can take care of them, someone who's responsive, someone who supports the customer, and someone who provides pre-sale support.
• 3:56
  SPEAKER_00: So when they bring a customer to our uh to talk to us, we are there to take care of the uh questions.
• 4:03
  SPEAKER_00: Uh, we provide pricing uh that helps our partners make money, and we ensure that the product is delivered and installed and working fine, just paying attention to details, really.
• 4:17
  SPEAKER_02: Okay, that makes sense.
• 4:18
  SPEAKER_02: So um in July, you announced a$7 million education contract, said you were targeting 36 or three salespeople by March of next year.
• 4:27
  SPEAKER_02: Just you know, how repeatable are deals of that size and how are hiring and new reps productivity progressing so far?
• 4:33
  SPEAKER_00: As you know, large deals don't happen every day.
• 4:36
  SPEAKER_00: But the most important thing is as we execute on these large deals, uh our partners are comfortable bringing us similar size deals, right?
• 4:46
  SPEAKER_00: Uh but the more uh the other thing is the deal sizes are trending upwards.
• 4:50
  SPEAKER_00: So as we execute on bigger and bigger deals, partners bring us into bigger deals.
• 4:55
  SPEAKER_00: And so the deal sizes are trending upwards.
• 4:58
  SPEAKER_00: As we provide confidence to the customer that we can execute on these large deals, then they are comfortable bringing large customers to us and they can trust us to deliver the products and services, and that's what we aim for.
• 5:12
  SPEAKER_00: And then after sales support is important, a network is very dynamic.
• 5:17
  SPEAKER_00: As long as you are there to support the customer, that's very important.
• 5:21
  SPEAKER_00: We always try to go above and beyond what customers expect in terms of sales.
• 5:27
  SPEAKER_02: That sounds great.
• 5:29
  SPEAKER_02: Um, so um, you know, you like a lot of folks, uh, even shifting towards recurring, and monthly recurring billings have been growing at around 50% year over year.
• 5:39
  SPEAKER_02: Just how far along is that shift that's a recurring model?
• 5:42
  SPEAKER_02: And how should investors read that, you know, alongside reported revenue?
• 5:46
  SPEAKER_00: Uh when we record the revenue, after that it becomes into monthly billing, 36 months or 60 months.
• 5:53
  SPEAKER_00: Uh, we are working hard to grow our monthly recurring billings.
• 5:56
  SPEAKER_00: As long as we consistently add new customers and retain current customers and grow our sales team to help add new customers, I believe we can sustain the momentum.
• 6:09
  SPEAKER_02: Sounds good.
• 6:10
  SPEAKER_02: So um now I want to talk about Total Security 360.
• 6:14
  SPEAKER_02: Um, maybe just tell us a little bit about that.
• 6:16
  SPEAKER_02: And you've said it's a rocket booster, I think, for the business.
• 6:19
  SPEAKER_02: So, you know, um, what is that?
• 6:21
  SPEAKER_02: Where is the adoption today?
• 6:22
  SPEAKER_02: Um, you know, what advantages does your on-premises solution option uh so your on-premises option offer customers compared to say a cloud-delivered uh security model?
• 6:32
  SPEAKER_00: Uh we are making several product demos for the product.
• 6:36
  SPEAKER_00: Uh, as you know, customers already have some sort of a solution and they have three-year or four-year contracts.
• 6:42
  SPEAKER_00: So, as those contracts come up for renewal, then we will have the opportunity to send up product and replace uh current existing products.
• 6:50
  SPEAKER_00: But we are working towards uh doing more and more demos, and uh customers understand and value the single stack solution.
• 6:59
  SPEAKER_00: So we are uh headed that way.
• 7:01
  SPEAKER_00: We are not there yet.
• 7:04
  SPEAKER_02: Got it.
• 7:04
  SPEAKER_02: Um so you launched SATBoost for satellite links in June and Constellation, your AI-assisted monitoring tool in August.
• 7:12
  SPEAKER_02: So, you know, how big could those become?
• 7:14
  SPEAKER_02: And where does AI fit in into uh the product and uh your strategy?
• 7:19
  SPEAKER_00: Uh satellite offerings, we are now training all our partners.
• 7:22
  SPEAKER_00: So they're looking at customers, bringing customers, and we are closing deals.
• 7:26
  SPEAKER_00: It's gonna take a few quarters to create the pull in the market as we sell through partners, but uh there's a big demand for it.
• 7:34
  SPEAKER_00: The reason being uh customers are looking at satellites to provide backup internet access or backup wide area network access.
• 7:43
  SPEAKER_00: Uh, now that Amazon has come into play, the prices of satellite connectivity has come down, which helps customers.
• 7:51
  SPEAKER_00: So in fact, we are just working on an opportunity uh for a large customer.
• 7:56
  SPEAKER_00: I don't know when that's going to happen.
• 7:58
  SPEAKER_00: Usually large options take six to nine months, but that will be a backup offering with satellite and LTE.
• 8:06
  SPEAKER_00: Um and then in terms of constellation, uh, that is getting quite a bit of attention.
• 8:12
  SPEAKER_00: The reason is it's a plug-and-play product.
• 8:15
  SPEAKER_00: It does not uh affect your network, it just monitors your network.
• 8:20
  SPEAKER_00: And we are finding that people like what we have.
• 8:23
  SPEAKER_00: And so we already had our first couple of sales, even though we just released it.
• 8:28
  SPEAKER_00: And another thing we are doing is we are adding more features for specific market segments.
• 8:33
  SPEAKER_00: One of those market segments is data centers.
• 8:36
  SPEAKER_00: There are certain unique needs, and we are now adding a new version of the product that will help uh with managing and monitoring data centers.
• 8:46
  SPEAKER_00: We have a large data center customer that is working with us for a fat pipe SD van, and we are wanting to sell these products to such customers.
• 8:57
  SPEAKER_00: We are also wanting to stand up a data center team that will probably happen in the first quarter.
• 9:04
  SPEAKER_02: That's great.
• 9:05
  SPEAKER_02: You can start to take advantage of that uh pretty big investment wave that investors are pretty familiar with uh already.
• 9:10
  SPEAKER_02: Um so uh in the June quarter, revenue grew 20%, and uh just the margin um was 26% ish.
• 9:18
  SPEAKER_02: Um, just how do you balance uh investing growth um you know versus profitability?
• 9:24
  SPEAKER_02: How do you think about that?
• 9:25
  SPEAKER_00: Um it's a good question.
• 9:27
  SPEAKER_00: It is a balancing act.
• 9:28
  SPEAKER_00: Uh every time we invest, we want to watch what the revenues are looking like and how to project the revenues.
• 9:35
  SPEAKER_00: And based on that, we can hire more people.
• 9:38
  SPEAKER_00: In fact, as we speak of three people training, we have hired to work in different market segments, and we are looking to hire two more people by the end of the month.
• 9:48
  SPEAKER_00: So we watch what the revenues are going to look like, what the uh buildings are looking like, and based on that, uh we are adding people.
• 9:57
  SPEAKER_00: So, our in terms of milestones, I always say that our targets are 18% growth and 18% margins.
• 10:06
  SPEAKER_00: That's where we want to be.
• 10:07
  SPEAKER_00: And we have been able to beat those two uh numbers the last few quarters, and hopefully we will continue to do the same in the future, but at least we want to make sure we are 18% growth and 18% margins.
• 10:20
  SPEAKER_02: Yeah, love the efficiency.
• 10:22
  SPEAKER_02: Um, just kind of looking out the the the next uh few quarters or perhaps the next year, just you know what are the milestones that investors should be watching for uh as the story evolves that perhaps uh indicate you're you're executing on your strategy.
• 10:35
  SPEAKER_00: Yeah, uh add more uh uh sales team members, uh expand geographies within the United States mostly.
• 10:43
  SPEAKER_00: We did open a couple of Southeastern uh Southeast Asian countries, but again, stick to the goal of 18% growth and 18% market.
• 10:54
  SPEAKER_00: And if we do better than that, great.
• 10:58
  SPEAKER_02: That's great.
• 10:59
  SPEAKER_02: We'll we'll definitely uh be watching this this very interesting story.
• 11:02
  SPEAKER_02: Um, Baskar, thanks again for coming, and I'll pass it back to Tim for uh closing comments.
• 11:07
  SPEAKER_01: Thanks, James.
• 11:08
  SPEAKER_01: Bascar, great to see you again and have you on the podcast as well.
• 11:12
  SPEAKER_01: Again, um, have a great day, and thanks for discussing Fat Piper with us today.
• 11:15
  SPEAKER_01: Very interesting story.
• 11:17
  SPEAKER_00: Thank you all for having me on your podcast.
• 11:21
  SPEAKER_01: Thank you for listening, and don't forget to subscribe as well as visiting www.watertowerresearch.com to stay up to speed on the company's small cap written research reports, podcasts, fireside chats, industry specific symposiums, and conference schedules.
• 11:37
  SPEAKER_01: We will see you next time for another edition of the WTR Small Cap Spotlight Podcast.
• 11:43
  SPEAKER_01: Finally, a special thanks to the producer and editor of the podcast, Krista Fitzpatrick.