And so this is work that we have been doing with them now for several years, and we have been able to be part of their core 5G architecture. And this is a spend for the next phase of scaling of their 5G services, which is really driven by consumer demand for 5G as well as fixed wireless access, which is a fast growing service. And so there are a couple of carriers in America and outside that are moving forward with 5G and are investing in their architecture and scaling their architecture. And we’re part of that and that’s where we’re seeing success. That, Meta, I should also say is the result and the benefit from investments we started making over four years ago. And so over the last four years, we have invested hundreds of millions of dollars in our BIG-IP franchise really to future-proof the BIG-IP franchise for the next decade, and really by bringing to the BIG-IP franchise benefits that customers would have seen either in the public cloud or in cloud-native architectures.
And those 5G architectures in the case of service provider are container-native and cloud-native, and we were really first out of the gate to bring a lot of 5G functions into a cloud-native architecture. And these investments that we’ve made into our BIG-IP platform are really starting to benefit in terms of customer wins where customers are now starting to reinvest for the future. We’re seeing that in service provider, but I think that’s also going to play out in the enterprise as enterprises start to adopt the next generation of BIG-IP.
Meta Marshall: Great. Thanks so much.
Operator: Thank you. Our next question is from James Fish with Piper Sandler. Please proceed with your question
James Fish: Hey, guys. Thanks for the question here. Just building off of some of the prior ones. Frank, can you just help us with how much of the recurring software product was tied to that SaaS drawdown or the headwinds that we’ve talked about with moving this more towards the Distributed Cloud Services over time versus the term license or roughly where that SaaS ARR sits today? And what’s the early feedback been from some of these customers on this transition, Francois?
Frank Pelzer: Yeah, Fish, not going to update Q1. Obviously, we talked about doing that on an annual basis. But where we were at the end of Q4 was roughly $200 million of ARR associated with that business. $135 million of that was going to be recurring. We are going to be growing that really on the back of Distributed Cloud, and $65 million of that was split between $30 million of product that we were retiring and did not expect to have a future, and $35 million or so was from Silverline that would migrate — some portion of that would hopefully migrate over the next couple of years. But not going to update where we are at the end of Q1 in regards to that. We will give an update for that at the end of the year. But I’ll let Francois answer the second part of your question.
Francois Locoh-Donou: What’s the second part?
Frank Pelzer: Sorry.
Francois Locoh-Donou: Jim, can you repeat the second part?
James Fish: Yeah. I was just looking for the early feedback from some of those customers that were part of that $65 million that essentially is being end of life, what those conversations are looking like at this point?
Francois Locoh-Donou: Okay. Great. No, Jim, look, those — we are — as Frank said, we are early days in this process, Jim, and we said it’s going to happen over the next couple of years, so I think it’s very early to draw some kind of long-term conclusions. However, we have migrated some customers from Silverline to F5 Distributed Cloud Services. And for those customers who have completed the migration, it has gone very well. And generally, they’re very happy with the outcome. So we are pleased with the early results of these migrations but more to come as we get more into it.
James Fish: Got it. I know you don’t want to give too much ahead of the event here in a few weeks, but are you guys seeing much contribution from AI? Or how should we think about when this contribution could really pick up for you guys and accelerate product growth? Thanks, guys.
A – Francois Locoh-Donou: Thank you, Jim. So our view on AI, so we have started seeing this quarter kind of the first emerging AI use cases of AI workloads that either needed to be traffic managed or load balanced or required some security. It’s early days because we think enterprise adoption and deployment of AI workloads is going to really start happening more, we think, in 12 months to 24 months. We think a lot of enterprises right now are testing some AI models and experimenting and getting through the learning curve, but they’re not at a stage of deploying in production. So we think it’s kind of 12 months to 24 months away even though we’re starting to see the first couple of use cases. That being said, from what we are seeing today, we feel very good that F5 is going to be an enabler of AI adoption and AI deployment.
And we feel this way for two reasons. The first is AI workloads are heavy consumers of APIs. And so APIs play a big role in the architecture of AI workloads because they need to ingest data and information or services from other AI models and also expose their own capabilities to other AI models or data sources. And because of that, there’s a lot of API traffic in AI workloads. And therefore, API security is going to be a substantial opportunity for AI, and we are very well positioned for that with the investments that we’ve made across the portfolio, including in F5 Distributed Cloud Services. And then the second reason is that we’re seeing AI workloads becoming quite distributed because some of the compute needs to be at the edge, but the data and the data sources could be in more central locations or in public clouds or at the edge.
So the fact that these workloads are distributed plays very well to the value – the core value proposition of F5 being a company that can serve any application or any API anywhere in any environment. And we’re quite unique in being in that position, so we think with AI, that is going to play to our strength.
Operator: Thank you. Our next question is from Michael Ng with Goldman Sachs. Please proceed with your question.
Michael Ng: Hey, good afternoon. Thank you for the questions. I just have two. First, on global services, very strong growth in the quarter, 7%. Could you talk about what may have gone better than expected? Are you still expecting global services revenue to grow low-single digits for the full year? And then second, I was just wondering if you could provide a little bit more color on the recurring revenue figure in the quarter, whether you could talk about the year-over-year increase or the sequential increase, kind of key factors impacting the change in recurring revenue? Thank you very much.
Frank Pelzer: Sure, Michael. So the — let me — I’ll take both but let me start with your first question on global services. It was quite strong for the quarter. There are a couple of factors. We are still seeing high maintenance attach, particularly for some of our older platforms. We’re starting to see some of that decline a little bit, which gives us some thoughts that over time, we’re going to see some of the refresh happen. But it’s too early to call like which quarter, in particular, that, that starts to take place. And it’s still, as I mentioned in the prepared remarks, we had our price increase that impacted our global services revenue as well in July of ’22. We captured some of that, a good portion of that in Q1 of ’23, but there was some more that came forward in Q1 of ’24 that ended up lifting that as well.
