And the approach with these customers is, we are landing them generally on our BIG-IP platform, but then we’re able to land and expand and cross-sell into the other value propositions in the portfolio once they discover the full portfolio of F5 when they start working with us. So we think that, that trend is going to continue, and we feel very good about our competitive position over the next two to three quarters. And we’re starting to see a growing pipeline that reflects that stronger position. Okay. Thank you, guys.
Operator: Thank you. Our next question is from Amit Daryanani with Evercore ISI. Please proceed with your question
Amit Daryanani: Thanks for taking my question. I have two as well. I guess first up on the software performance, I’d love to just understand if you still think for the fiscal year, flat to up modestly is the right way to think about it? And if there is any change in how you think about sort of the — what happens to the perpetual market or the managed services or subscription as you go from here? Just an update on how you think about software stacking up for the rest of the year in any of those three buckets that changed your perspective right now?
Frank Pelzer: Yeah, Amit. Let me start with that one. No is the answer. It’s one quarter doesn’t make a trend. We’re obviously encouraged by what we saw in software in Q1. More to come on Q2 and beyond. But at this point, we’re not changing the outlook on that modest growth view for software and largely, again, subscription and perpetual service. It was a big quarter for perpetual this quarter. It may not be the same next quarter in that regard. This is really about some specific customer preferences in the service provider market. And they could have easily have gone into a subscription model and we would have seen that dynamic reverse. So no real change in our outlook for software right now for FY ’24.
Amit Daryanani: Got it. And then I guess last time around, you talked about there might be a 400 basis point, 500 basis point headwind from this managed services transition you’re going to take across ’24 and ’25. I was wondering, if there was a better sense of when do you think those headwinds would happen if it’s this year or next year? And then, Frank, on the operating margin side, you had quite a bit of outperformance in the December quarter, which is really notable. And I realize you don’t want to change the long-term target, but I’m wondering, was there anything one-off that enabled this upside in December or not? Thanks.
Frank Pelzer: Sure, Amit. So look, we changed the outlook on EPS for the year, up 1%, really driven by tax in the quarter itself with OpEx. There were a few expenses that probably got pushed into either Q2 or beyond. But seasonally, Q1 is relatively strong, Q2 goes down because of the tax resets. It’s also going down this year, in particular because we’re having our marketing event. We take those expenses in the quarter in Q2 versus previous years where they have been in Q3 or Q4. We actually didn’t do one in FY ’23. And so as a comparative point, that’s new expense this year on a year-over-year basis. But the seasonality of where we really hit that tax reset happens in Q2 and we build our way back up from there, so that’s that.
In terms of some of the migration of our Silverline, it’s going as expected. It’s very early. There’s not really a lot more to say about it. As we said, generally, we’re going to see more — we’ll probably see a balanced amount of customer accounts, but more of the ARR come across that will come across in FY ’25, just given some of the feature parity that we’re still working on that’s going to take some time. And the bigger customers are the long tail of the ones to migrate. So it’s just going as planned right now, but we’re obviously one quarter into an eight quarter transition.
Amit Daryanani: Perfect. Thank you.
Operator: Thank you. Our next question is from Meta Marshall with Morgan Stanley. Please proceed with your question
Meta Marshall: Great. Thanks. Francois, you noted that you weren’t yet seeing kind of customer budgets change but getting to more predictable spending patterns. Just what are you seeing in terms of RFP activity, understanding people are still kind of doing evaluations? But are you starting to kind of see a pickup in the valuations that they’re doing and any particular categories in which you’re seeing that pickup in activity? And then second, just on the service provider piece, it sounds as if that’s really just an election decision. But anything that you’re — just given how constrained service provider spending has been over the last year, just anything that you were seeing in terms of them being more active in the market or any specifics around that vertical would be helpful? Thanks.
Francois Locoh-Donou: Meta, the — so let me start with the environment. What we have seen, Meta, is the — relative to — if I compare to where we were kind of nine months, 12 months ago, we feel that the environment is more stable and more predictable in the sense that the budgets that are in place and the projects that our customers have told us they’re moving forward to, when we get to the end of a selection process or the end of an RFP process, we very rarely get into a surprise where a project is canceled or an extra approval comes in and deals get delayed or pushed out. So that has subsided largely, and therefore, we see more predictability with customers. That said, I would say there — we haven’t seen yet a notable increase in budgets.
I think for the most part, for the calendar year, our customers don’t have the kind of budget fully in place yet. So we’ll start to learn more about that as the quarter goes on here. But what we are seeing that is encouraging is when you look at our pipeline over the next four quarters, we are seeing an uptick in the pipeline and potentially more tech refresh kind of activities. So that’s an encouraging sign for what’s ahead. In terms of service providers, I would say generally, we’re still seeing service providers continue to sweat their assets as much as they can and therefore suppress CapEx spend as much as they can. There are some exceptions to that, including, I mentioned in my prepared remarks, a significant win with a North American service provider in their 5G architecture.
