Capillary Q1 FY27: Growth Holds at 43% as Margins Expand, While a One-Off Fraud Loss Distorts Reported PAT

Capillary Technologies opened FY27 with a quarter that was strong on operating execution and unusual on reported bottom line. For the quarter ended June 30, 2026, revenue from operations rose to ₹2,566.4 Mn, up 43% year on year. Adjusted EBITDA climbed to ₹440.2 Mn, up 132% year on year, and margins improved to 17.2% from 10.5% a year ago.

Reported profit after tax moved into a loss of ₹95.5 Mn, a minus 4% margin. But that headline number was dominated by an exceptional expense linked to a cyber fraud incident in the SessionM Czech Republic subsidiary, which the company has provided for pending potential insurance settlement. On a normalized basis, PAT was ₹254.4 Mn, a 10% margin, broadly consistent with the prior quarter’s normalized profitability.

The quarter is best read as a blend of three stories. First, the core platform continued to deliver high retention-led growth, with organic net revenue retention at 111%. Second, acquisitions added scale, most visibly SessionM, which closed on May 1, 2026. Third, the company is showing operating leverage, especially in costs below gross margin, even as it invests heavily in engineering and AI.

A subscription-heavy model, with growth coming from retention and scale

Capillary positions itself as a global loyalty and engagement management platform selling AI-powered, cloud-native products to large enterprises under long-term subscription contracts. As of June 30, 2026, the platform served 465 plus brands across 53 countries, with 2.7 billion plus consumers on the platform and 25 Fortune 500 customers. The company reported 99.997% product uptime and about 750 employees globally.

That business model showed up clearly in the quarter’s revenue mix. Subscription revenue in Q1 FY27 was ₹2,424.9 Mn, accounting for 94.5% of total revenue. Subscription revenue grew 50% year on year from ₹1,616 Mn to ₹2,425 Mn. Other services such as installation contributed ₹122.4 Mn, and campaign services were ₹19.2 Mn. A mix shift toward subscription, aided by the acquired SessionM business, increased the overall recurring nature of revenue.

Management linked growth to a familiar set of drivers in enterprise software. Net revenue retention expanded existing account spend through usage overages and inflationary increases, product upgrades and service upsells, and expansion into new brands, geographies, or business units. New customer wins added incremental annual contract value, with trailing twelve month new ACV rising 75% year on year to ₹926 Mn, excluding one large healthcare customer in the prior base. And acquisitions added both revenue and a migration opportunity that can lift gross margin over time.

Profitability levers are visible, but acquisitions and accounting matter

Capillary’s margin expansion this quarter was not a one-line surprise. The company laid out three profitability levers that fit the mechanics of its business.

First is NRR-linked margin expansion. Incremental revenue from existing customers typically comes at higher gross margin, and subscription gross margin was stable at 66% in Q1 FY27. Second is leverage on non-COGS costs. Around 60% of costs sit in technology, sales and marketing, and corporate functions that do not rise linearly with revenue. In Q1 FY27, expenses grew 32% year on year, slower than the 43% revenue growth, supporting operating leverage.

Third is the margin lift available through upgrading customers from acquired platforms to Capillary’s platform. Management stated that post-upgrade, customers can move from around 30% gross margin to around 65% gross margin, turning M and A into a 4 to 5 year cash payback engine. The quarter’s profitability improvement is early evidence of this direction, although the financial statements also reflect higher amortization due to recent acquisitions.

The reconciliation between reported PAT and adjusted EBITDA also highlights why investor focus tends to stay on operating metrics in this phase of consolidation. In Q1 FY27, depreciation and amortization were ₹200.4 Mn, reflecting the acquisition footprint. ESOP expenses were ₹36.9 Mn. Finance income and fair valuation and foreign exchange gains were ₹56.8 Mn, which reduces adjusted EBITDA by definition. After factoring these, EBITDA was ₹460.1 Mn and adjusted EBITDA was ₹440.2 Mn.

Sequentially, adjusted EBITDA margins eased from 18.7% in Q4 FY26 to 17.2% in Q1 FY27, while normalized PAT margins stayed around 10% in both quarters. That suggests the company is balancing growth integration and investment with discipline, rather than pushing for short-term margin optics.

Growth engine quality: NRR strength, new ACV momentum, and lower concentration risk

The retention picture remains a central indicator for Capillary, and it held up. For the trailing twelve months ending June 30, 2026, total NRR was 113%, with organic NRR at 111% and inorganic NRR at 120%. Management emphasized that organic NRR is the cleanest view of retention performance because it measures customers already on the Capillary platform, while inorganic cohorts can show temporary distortions during migration.

ARR ended Q1 FY27 at ₹10,266 Mn, up from ₹7,654 Mn in FY26 and ₹6,083 Mn in FY25. The company framed this as the combined impact of SessionM, NRR, and new ACV. New ACV at ₹926 Mn on a trailing twelve month basis points to improving go-to-market outcomes, particularly in larger global deals.

Customer concentration is moving in the right direction. In Q1 FY27, the top five customers contributed 34% of revenue, down from 40% in Q1 FY26. Importantly, this decline was accompanied by growth in absolute revenue from the top five, which rose from ₹727 Mn in Q1 FY26 to ₹867 Mn in Q1 FY27. That pattern usually signals healthier portfolio breadth rather than weakness in core accounts.

Operational capacity is being expanded to support this growth. Headcount at June 30, 2026 was 761, up 11% quarter on quarter, primarily due to the SessionM acquisition. The functional mix shows a heavy product and engineering orientation, with 67.4% in engineering and R and D and 20.4% in customer success. Sales and marketing represented 5.7%, which aligns with an enterprise model where expansion revenue and partner channels can be material, and where the product footprint itself drives adoption.

AI as platform extension, and M and A as a structured margin story

Capillary’s product narrative in the presentation is tied to a three-layer AI framework: system of record, system of intelligence, and system of actions. The base is the loyalty platform as a system of record. The intelligence layer is aiRA as an analytics agent that shifts from dashboard-driven discovery to intent-first answers. The action layer is aiRA agents that turn insights into campaigns and personalized digital experiences, priced on usage or outcomes.

This framing matters for two reasons. First, it links innovation directly to monetization. The company described newer experiences and agents as usage and outcome-priced, which can expand revenue per customer without needing constant new logos. Second, it reduces workflow friction by keeping marketers on one platform, which can strengthen retention and cross-sell.

The company also highlighted a talent and technology acquisition of CustomerGlu, rebranded as Experience+ and positioned as an extension of Loyalty+. The emphasis was on enabling in-app gamified actioning such as challenges and streaks and reducing IT dependency, allowing marketers to launch and optimize experiences in near real time.

On M and A execution, SessionM is the most recent proof point. The acquisition completed on May 1, 2026. In the two months since close, acquired customer contracts were tracking to the planned 32 million dollars ARR, and platform upgrade plans were on schedule to support break-even profitability in the first year post acquisition. The purchase consideration settled in cash was ₹169.1 Mn net of debt-like adjustments, which the company characterized as efficient.

Migration progress is a key swing factor in translating acquisitions into margins. Management stated that almost all customers from previous acquisitions such as Persuade, Brierley, and Rewards+ have migrated to the Capillary stack, with only two customers remaining. For Kognitiv and SessionM, the company is using AI-powered migration capabilities intended to reduce time and effort, and it reported early positive results and a pipeline of integrations scheduled for coming quarters.

The cyber fraud incident: contained operationally, but a live recovery process

The exceptional expense that turned reported PAT negative was tied to a social engineering fraud at SessionM Czech Republic s.r.o., a step-down subsidiary. Between June 24 and July 2, 2026, perpetrators impersonated the group CEO and a purported M and A counsel of a global law firm, inducing a senior executive of the subsidiary to make unauthorized remittances.

The company provided for ₹333.9 Mn as an exceptional loss pending potential insurance settlement. It disclosed that accounts in Singapore containing approximately ₹47.0 Mn had been frozen by banking authorities as part of ongoing recovery efforts. Criminal complaints were filed in Czechia on July 3, 2026 and in Singapore and Hong Kong on July 4, 2026, with filings also made in India. The company engaged a Hong Kong law firm specializing in fraud litigation, and counsel estimated 6 to 8 months for recovery through Hong Kong court proceedings for frozen stolen monies.

A KPMG forensic services team in Prague is conducting an independent investigation, with laptop imaging and IT artifact collection in progress and no evidence of malware or device compromise so far. The final report was expected later in August. The company also notified its crime insurance policy under social engineering provisions, with a surveyor appointed and a process expected to conclude in approximately 5 to 6 months.

For investors, the disclosure provides two practical signals. One, the company treated the loss conservatively by providing for it immediately, which depresses reported earnings but clarifies the base case. Two, recovery and insurance timelines are likely to extend across multiple quarters, making normalized profitability and cash discipline the more useful tracking metrics in the near term.

Closing view: disciplined execution, with the next proof point in migration and retention

Capillary’s Q1 FY27 results show that the core business is scaling well. Revenue growth of 43% is being supported by high organic NRR of 111%, rising ARR, and stronger new ACV. The quality of revenue continues to improve as subscription rises to 94.5% of total revenue, reinforcing visibility.

Profitability is moving in the right direction, with adjusted EBITDA margins at 17% and cost growth below revenue growth. At the same time, the quarter reminds investors that acquisitions introduce operational and financial complexity, from amortization to integration work, and in this case, an exceptional fraud loss that will take time to resolve.

Management reiterated FY27 guidance of ₹10,650 Mn revenue and ₹1,720 Mn adjusted EBITDA. The next quarters will likely be judged on three execution markers: sustaining organic NRR around current levels, converting migration pipelines from Kognitiv and SessionM into organic-like margins, and maintaining governance and control resilience after the fraud incident. If Capillary delivers on those, the company’s strategy of pairing a sticky system of record with AI-led monetization and disciplined M and A could keep compounding ARR and margins through FY27.