We have not changed our outlook for the full year on low-single digit. There’s a possibility we do better than that, but I wouldn’t change – we’re not changing our model at this stage for this first quarter. We’ll see what happens over the next couple of quarters because there are some of those dynamics that could flop that we’ve seen for the past five or six quarters on asset sweating to turn into a refresh cycle. And so some of that could swap out. But we will see as we continue to go throughout. And then in the recurring revenue piece of the total business, some of that was just impacted by the large service provider deals, is on track to exactly what we were expecting and modeling. And so we are feeling quite good about the business to come.
Michael Ng: Thanks.
Operator: Thank you. Our next question is from Alex Henderson with Needham & Company. Please proceed with your question.
Alex Henderson: Great. Thanks. I was hoping you could talk a little bit about the enterprise behavior patterns around what has been termed the year of efficiency, which obviously had a negative impact on new application development as well as the impact it had on existing applications, which were then shut down, downsized or cleaned up. I’ve heard some indications that, that’s starting to shift to a reacceleration. And I would think that, that would play well to your application and particularly NGINX and other product lines. So is that something that you’re seeing or are you just too early to say that there’s any reacceleration of application growth?
Francois Locoh-Donou: Alex, it’s a great question. Let me parse it out. I think one thing we have seen perhaps accelerate in large enterprises really over the last 12 months is consolidation, and so really going through their portfolio of applications in an enterprise and looking through that portfolio and looking at what apps are really mission-critical, which apps really need to continue to be in service and which apps need to be decommissioned or rationalized. And we have seen more enterprises pick the decisions of rationalizing some apps and, in some cases, reducing their application portfolio to focus on the ones that are most meaningful. At the same time, we have seen those apps that are important to enterprises. Application traffic on these apps continue to grow.
And they continue to modernize applications, meaning they can start with traditional applications and add modern components that are in a public cloud or in a private cloud. And that leads to more and more of these multi-cloud environment for application portfolio. And that’s where really we have positioned F5 to be the ideal partner for large enterprises that have an application portfolio that is distributed across multiple environments, private cloud, public cloud, on-prem and increasingly at the edge. And we are starting in our engagement with customers, we’re starting to see that play out. So for example, outlook today, two-thirds of our NGINX customers are also BIG-IP customers. So the cross-selling effect on the portfolio of taking a BIG-IP customer that has a traditional application that then goes and wants to modernize that application or parts of their application portfolio, landing on NGINX is a motion that we have made easier for customers, both technically and in our commercial agreements.
We mentioned in the call on Q4 that we had passed 500 Distributor Cloud customers, and two-thirds of those customers of Distributed Cloud are also existing F5 customers on BIG-IP or NGINX. And so again, these are examples of customers that are distributing apps across multiple environments, and they are leveraging more and more multiple products in the F5 portfolio to do so.
Alex Henderson: And then the second question was on the upgrade cycle around the rSeries versus the older iSeries. We’ve been now, I think, 18 months, almost 24 months into that product launch. Initially, it was hampered by inability to do a lot of the use cases. My assumption is that you have now completed all of the use cases that were on the iSeries and therefore should be seeing a meaningful upgrade cycle over the next 12 months to 18 months to that platform. Can you talk a little bit about what type of renewal cycle you expect there? Thank you.
Francois Locoh-Donou: Alex, thank you. Well, first of all, we are really pleased with the adoption of our series in our customer base. I mean, I mentioned earlier that we have put a lot of work towards bringing these cloud benefits like multi-tenancy to our customers. And that’s one of the reasons the adoption of rSeries has gone very well. Relative to where we were a few quarters ago, Alex, you’re absolutely right. We have maybe now the majority of the use cases with — that we had on our private platform, iSeries are now covered by rSeries. Not all of them, we’re still working through some of them, but the majority are covered. And I think this year, the majority of the appliances we ship will be rSeries. So they are — I think they have passed already 50% — more than 50% of the appliance we’re shipping are now rSeries.
In terms of would we see a big refresh cycle or a big ramp related to rSeries in coming quarters, I would say, I wouldn’t think about this the way we used to think about refresh cycles seven, eight years ago when our business model was entirely appliance driven. But I do think we are seeing a pipeline of tech refresh in the coming quarters that is stronger than what we had six months to 12 months ago and that will go to rSeries largely.
Alex Henderson: So the pipeline is improving and the subscription turnover should be amplified over the next two, three, four quarters is sort of the read? Thanks.
A – Francois Locoh-Donou: Well, I just want to make sure, Alex. I’m talking about the pipeline of tech refresh, which is hardware, which is largely not sold on a subscription basis but rather typically on a perpetual basis. But yes, that pipeline is increasing. Of course, what we’ll have to see is what is the conversion on that pipeline when we get to it? Over the past, I would say in 2023, pipeline conversion was, of course, not as good as it has been in prior years, but we’re hoping with more predictability, we would – that we would see a better pipeline conversion. The other data point that we’re seeing is the rate of increased aging at our customers, aging of the platform is slowing down, which suggests that the sweating of assets is tempering down a little bit specifically with enterprise customers. And so hopefully, this will play out in coming quarters.
Alex Henderson: Understood. Thank you.
Operator: Thank you. Our next question is from Tal Liani with Bank of America. Please proceed with your question.
