Fatpipe Inc/UT (NASDAQ:FATN) reported fiscal third-quarter 2026 revenue of $4.1 million, which CEO Ragula Bhaskar said represented 30% growth from the prior-year quarter, as the company continued shifting customers toward a subscription-based model. On the company’s Q3 earnings call, management highlighted accelerating monthly recurring billings, steady profitability, and expanded investments in sales capacity and partner channels.
Quarterly results: revenue growth and recurring billings
Bhaskar said total revenue for the quarter was $4.1 million, up 30% year over year. He also pointed to growth in recurring activity, noting that monthly recurring billings increased 48% versus the same quarter last year, which he said reflected “continued adoption of FatPipe’s subscription model.” Total quarterly billings rose 27% compared with the prior-year period.
Profitability and cash flow discussion
Adjusted EBITDA for the three-month period was $0.59 million, which Bhaskar described as approximately a 14% EBITDA margin, compared with $0.57 million in the year-ago quarter. He added that EBITDA margin was lower than the previous quarter’s 18%, attributing the change to increased investment in growth.
For the nine months ended December 31, Bhaskar said EBITDA margin was about 21%, down from 31% in the comparable period, again reflecting higher growth investment. He also said net income for the quarter was $310,000, compared with $84,000 last year, which he attributed to higher revenue.
Bhaskar noted that nine-month net income ended December 31 was $1 million but lower than the prior year, citing stock-based compensation expense as a significant factor. He specifically pointed out that $625,000 of stock-based compensation expense was recognized in the second quarter and that the third quarter did not include stock-based compensation expense.
On liquidity, Bhaskar said cash equivalents were $6.2 million, which he said provided flexibility to support growth. He also said the balance sheet had grown significantly, reflecting proceeds from the IPO as well as operations. Management reported cash flow of $132,000 for the last nine months and $240,000 for the last three months. While emphasizing growth investment, Bhaskar said the company’s goal is to remain cash-flow break-even.
Deferred revenue decline tied to business model transition
During the Q&A, management addressed a question about why deferred revenue declined while top-line revenue increased. Sanch (company executive on the call) explained that deferred revenue represented “traditional revenue” from existing customers, and as those customers move to the monthly recurring revenue model, that deferred revenue component declines while monthly recurring revenue increases. Management framed the shift as a “positive trend” and said FatPipe is encouraging customers to move to monthly recurring revenue.
Sales execution, hiring plans, and channel strategy
Bhaskar said the company is expanding its sales organization and partner network, including traditional VAR and solution-provider channels as well as the ISP channel. He said FatPipe had 24 salespeople at the end of December and that the goal is to add another 12 this year, bringing the team to about 36 salespeople. He said the company plans to add coverage in markets where it currently has little or no presence and suggested there is significant geographic whitespace.
Asked about strategic priorities for the coming quarter (Q4 fiscal 2026), Bhaskar said the focus will be on executing on orders already received and increasing the productivity of new sales hires while pushing new products into the market. He said he felt “pretty confident” about the company’s goals for the next six months, citing incoming orders, a strong pipeline, and improving productivity from recent hires.
On partner contribution, Bhaskar said the company expects its largest partners to continue contributing, but it is also working to develop other partners it had “ignored in the last few years” due to focus on a large partner. He said that with additional resources, FatPipe is re-engaging those partners and expects a “nice tilt” toward a more balanced contribution by year-end.
Management also discussed how it balances investing for growth with maintaining cash flow. Bhaskar said the “perfect scenario” is growth while staying cash-flow break-even, and he reiterated a goal of remaining cash-flow break-even for the next two years while reinvesting in growth. He said that as growth increases, cash flow should become more positive over time, but also emphasized that he does not want to burn cash.
Product positioning: AI, cybersecurity, and on-premise architecture
On product and competition, Bhaskar said the company aims to keep margins up, though large deals may require discounting that could pressure gross margin. He argued that larger deals could still improve total profit because they may carry lower relative selling costs.
Management said FatPipe has added AI components within its cybersecurity offering, including AI models deployed on-premises to address customer data and GDPR-related concerns about data leaving a customer site. Bhaskar gave an example focused on schools, describing an AI-based approach to analyze images and block inappropriate content that might be difficult to classify through traditional filtering.
In discussing the company’s cybersecurity strategy, Bhaskar contrasted cloud-only approaches with FatPipe’s on-premise option, arguing that keeping processing local can reduce latency and jitter and keep data from leaving the building. He also said the company is applying security across network security, cybersecurity, and email security, describing capabilities such as data loss prevention, attachment scanning, and phishing and virus detection within email workflows.
On revenue mix, Sanch said FatPipe is already generating revenue from its cybersecurity offering—citing functions such as firewalling, access control, and geoblocking—alongside SD-WAN revenue. He said the company has not yet separated revenue reporting by product, but as revenue grows, it will consider breaking out SD-WAN and security revenue categories in the future.
Asked about competitive landscape, Bhaskar referred to CrowdStrike and Palo Alto Networks as “800-pound gorillas” that do their respective areas extremely well. He said FatPipe’s focus is to “thrive” in its area by taking care of customers and maintaining a cost structure that allows it to offer what he described as equivalent or better products at lower prices.
Management also reiterated interest in acquisitions, with Bhaskar inviting investment bankers on the call to bring potential opportunities aligned with FatPipe’s customer profile. Executives said they do not plan to issue shares for acquisitions and instead would look to balance sheet financing, including the use of notes payable, with an eye toward avoiding dilution.
About Fatpipe Inc/UT (NASDAQ:FATN)
FatPipe is a pioneer in enterprise-class, application-aware, secure software-defined wide area network (“SD-WAN”) solutions for organizations, including enterprises, communication service providers, security service providers, government organizations, and middle-market companies. Organizations, large and small, have become increasingly dependent on their information technology (“IT”) network infrastructure for data access and communications, and the critical importance of network reliability, extensibility, and durability has continued to grow as the volume of traffic across those networks expands.
