NASDAQ: FATN
Lisa Thompson: Hi everyone, I'm Lisa Thompson, Senior Technology Analyst with Zacks Small Cap Research, and welcome to another episode of our CEO Chat. Today we have the Chairman and CEO of FatPipe Networks (NASDAQ: FATN), Dr. Ragula Bhaskar, as well as Kanishka Ragula, who is the newly appointed CFO, here to answer our questions and to talk a little bit about what's going on at the company. Dr. Bhaskar, will you please start off? And tell us about the company and what you do.
Dr. Ragula Bhaskar: FatPipe Networks makes mission-critical networking products. We focus on customers who need a connected network all the time. We make high-performance networking products that include a single stack for SD-WAN, cybersecurity, network visibility, and network monitoring. Essentially, an all-in-one package for customers.
LT: Can you talk about your industry and how fast it's growing and who some of your competitors are and how you compare against them?
RB: The SD-WAN industry is growing at the rate of around 25%. Cybersecurity is growing at 11%. Network monitoring is growing around 15 to 11%. That is the typical rate in the industry. In terms of competitors, on the high end, we have the major networking companies. But we have better products, and we have more innovative products. And if you look at all the customer reports or customer surveys, FatPipe is always number one on product and number one in customer service. Even though we are smaller, we are better in terms of product and service, and that's the reason why we land customers when we compete against the big boys.
LT: I really think one thing that gets lost sometimes is how unique your product is in that you created it and it's your platform and it's patented and you've never bought a product to add on to it. Talk about how that's an advantage when you go up against the others.
RB: That's a good question. Very insightful, because when you are a big company, whether you are a Juniper or Cisco, you buy multiple products from multiple startups. The problem with that is integration. Getting it all to work and getting to do it efficiently is always a challenge. And then supporting the customer is an even bigger challenge, because you have all these product specialists who have to come to the table to help the customer. In our case, since it's the same company developing all the features, we have a single-stack solution. The major advantage is the speed of performance of the product, and the ability to bring all the parts together and deliver a solution for the customer. And now that we are adding AI to it in the next several months, we'll be able to take all the data and make more sense out of it for AI to deliver predictive networking results. That's a major advantage.
LT: Interesting. Could you give us an example to just make it simple for people: a customer that came to you, why they came to you, and what's better for them?
RB: Number one again, the product is the best in the market. We have thirteen unique patents; we invented SD-WAN. We have a lot of unique patents. The second part of that is that after SD-WAN, we added cybersecurity, network monitoring, and network visibility. Now, if you have to analyze a network issue, we can look into the network side of things. We can look at the network devices’ performance, up/down status performance, and we can look at cybersecurity issues. Together, we can understand if there's a network issue; together we can understand all the different things that are affecting the network, and we can make a faster root cause analysis. There's a big advantage to having a single product from a single company.
Kanishka Ragula: Bhaskar, if I may add on top of that, just as a customer case study example to make it easier for some of the viewers to understand, we had a mid-sized business in the Midwest with multiple locations that served multiple customers on a regular basis. They had used FatPipe to initially connect two different ISPs to get redundant internet connectivity using FatPipe SD-WAN.
After they made the initial purchase with SD-WAN, because of our platform offering that we have, we were able to expand this platform to add cybersecurity for this customer, so they were now protected on their network connection from any inbound threats to their offices. After we released monitoring as well, this customer has expanded their solutions that they purchased from FatPipe to include monitoring for both their wide area network on the public-facing internet as well as the local area network, which is the devices and computers within this network. A FatPipe customer oftentimes will start with one FatPipe product, which is our SD-WAN offering, and then expand beyond that to include other additional features like our cybersecurity offerings or our network monitoring offerings. That's what you get when you offer a platform that has been built in-house from the ground up as opposed to bolting on multiple smaller acquisitions over the course of multiple years.
LT: Sounds great. Well, let's not forget one of the major factors that's helping your sales growth is that you almost tripled, or did triple, your sales force. Talk about how that's working out.
RB: We have hired people in different geographies and different market segments. For instance, in mid-markets or in government, we are adding more people to that. And as these people become productive, they are bringing in deals. And that is helping us with the growth. And we are adding more people. By the end of the fiscal year, we should have around 36 salespeople.
KR: And our salespeople go beyond just going door to door selling products. FatPipe has a unique channel model, which is similar to some other companies in the industry, but the goal is for our salespeople to amplify our selling capabilities by engaging with partners. Whereas a single salesperson can only call maybe ten customers in any given day, what FatPipe salespeople do is go to the various channel partners we sell through. We go to the individual sales representatives at these partners, train them up on the advantages of FatPipe products, and support them as they go out and sell to their customers.
What that allows us to do is, even though we have a lean sales force of only 36 people, we're able to actually get activation across all our channel partners and have hundreds, if not thousands, of people who know what FatPipe is and can communicate to their end customers what the FatPipe solutions and what the FatPipe offerings are, enabling our lean sales force to have a much more outsized impact on the overall sales effort of SD-WAN and FatPipe's awareness in the market.
LT: I know you have one channel partner that's over 30% of sales. Can you describe a little bit what that relationship's like and what they do and what you do?
RB: They are a major ISP in the country, one of the largest ISPs in the country. And so they sell FatPipe to their corporate customers. If a customer has a need for networking of different types, of different lines, they use FatPipe to deliver the last-mile connectivity. Our products, our support, our services, and their data lines and their sales team.
LT: I wanted to point out that people should know a little bit about your financial situation: that you're an $81 million market cap company, growing, profitable, and when we compare you to all the other people in the industry, you're about a quarter to a third of the valuation of these other companies that do the same thing. I think there's a lot of upside there for investors. They should take a look. Can you tell a little bit about what to expect going forward? What should we be looking for? New contracts or new channel partners? What should investors check?
RB: We are adding more channel partners. We just recently signed Carahsoft, which is a government distributor, and we also signed Howard Technologies, which also has a big reach. It's a $4-some billion-dollar company. Besides signing up new partners, our focus is to make our current partners productive. For instance, let us say a partner has 100 or 500 employees. We have not reached out to all 500 or 100 employees. The task is twofold. One is to reach out to more employees within the partner channel and to add more strategic partners. Those are the two things we are doing. In terms of what to expect, more of the same. Our growth, as I said in the last several quarters, is to have about 18% growth and 18% EBITDA. We have been doing 20-some percent growth and 25% EBITDA, but in terms of forecasting, we say 18% and 18%.
LT: That's great. Look forward to hearing more news from you folks. Anything else you want to add?
KR: I think one additional feature I do want to talk about is, when FatPipe approaches, call it, how we operate a business. Unlike many smaller companies our size, our goal is that whenever we're growing the business, we want to grow profitably and remain a Rule of 40 company, in that we want to match any revenue growth we have with the equivalent profitability on the bottom line to ensure that we're not burning cash unnecessarily to keep the company growing and keep investors with decent returns, in our view.
The company itself has been cash efficient for nearly thirty years since it was founded. And we keep the same financial discipline that we have been holding the business to for the past two decades. And overall, FatPipe as a company, we look to continue growing, continue being successful in the market, and supporting our channel partners and helping them win sales across various categories and various end markets that they compete in.
LT: That's great. That's a great summary. Also, glad that you added that, because it's kind of a rare thing nowadays to not need more cash. I think we had a good conversation here. If anybody wants more information, I'm sure you can contact the company, go to their website, or, if you want my research reports, you can get them at scr.zacks.com and give us a call. Thank you so much for your time.
RB: Thank you, Lisa.
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