Tal Liani: Hi, guys. I have two questions, more kind of longer term, not on the quarter. SaaS is about 7% of total revenues, give or take, if I look at what you disclosed last year. What needs to happen or what can you do in order to grow SaaS revenue substantially? And I’m talking about, what are you doing on front of educating the channels and things you need to do with the channels and go-to-market and things? And the second question is related to that but kind of an aside. How much competition do you see from CDN companies like Akamai and CloudFlare are adding features and how much of a risk is it to F5? Thanks.
Francois Locoh-Donou: Thank you, Tal. I think I’ll start here. So Tal, first of all, let me make sure we’re using the same terminology here. So SaaS and managed services represent, you’re right, about 7% of our revenues. We have said on our October call that given the transition we were going through in our managed services, that we expected our ARR in SaaS and managed services to be flat over the — basically over FY ’24, FY ’25, but then beyond that, returning to growth. In terms of the things that we can do to drive growth in this business, it’s — we’re continuing to focus on areas that are markets that are growing and where we will gain more customer adoption, specifically the WAAP market for all application security, API security, bot defense, web application firewall, DDoS, this bundle of services.
We’re doing very well in the WAAP market today with Distributed Cloud Services, but there’s plenty of opportunity for us to grow. And the multi-cloud networking market, we’re starting to see traction and more customers needing to connect applications between clouds. And we have a perfect solution that is a SaaS-based solution for that marketplace. So I think the ambition here is to really win in these two markets, and that alone should drive substantial growth over time in our SaaS and managed services business. And the approach to that is really lending the customers on an initial service and then expanding over time to other services. In terms of competition with CDN players, yes, in this market, we will compete more and more with those players.
They have been, frankly, in the market for longer than we have, and they have more maturity today in this market than we have. So we are in the SaaS part of the business, we are — this is really a net new opportunity for us and we are an attacker in this market. I think the two big strengths we bring to this competition is, number one, the architecture that we have is a more recent architecture and it’s entirely defined in software. And so it’s not limited by the limitation of hardware in any given thought. And so it’s more universal and more flexible than prior architectures. Number two, we bring 20,000 customers that we have that have used F5 hardware, software, deployable hardware/software products in the past and often want to continue to use those products and add SaaS to support other applications.
And ideally, we want to be able to manage the whole thing from a single pane of glass. And that is something that F5 is going to be able to do that our competitors are not able to do. In addition to all the sort of product capabilities, we’re also – I think you touched on it, Tal, we’re also spending a lot of time on our go-to-market, educating our channel partners. We are very pleased that a lot of the deals we’re winning in SaaS, actually, over the last – I think over the last 12 months, close to 50% of the deals we have won in SaaS have been partner-initiated opportunities. And so we are very pleased with the early contribution of our partners to this growth. But there’s more to do. We’ve been on the road show over the last several months, educating all of our partners on the value proposition, and we’re seeing more and more traction with them.
So a lot more work to do on the go-to-market because it’s early days, but we’re happy with their initial contribution to the success.
Tal Liani: Thank you.
Operator: Thank you. Our final question will be from Sebastien Naji with William Blair. Please proceed with your question.
Sebastien Naji: Great. Thanks for squeezing me in here. Can you maybe comment on how much of your software growth outlook here in fiscal year ’24 is underpinned by the app growth that you’ve been talking about driving expansions versus your ability to cross-sell some of your existing customers to either additional security or to Distributed Cloud Services? And then as a second question, just following up on the CDN commentary. What are the types of customers that have been the early adopters of that CDN module and Distributed Cloud.
Francois Locoh-Donou: Let me start with the second part of the question. So the CDN module of Distributed Cloud, as you know, is fairly recent. I think we launched it about a quarter ago, if I recall. And we’ve had adoption. So this has been, I was mentioning earlier, a land and expand motion. So the customers who have adopted that are customers that typically did not start with F5 for CDN, but typically, they started with F5 for a security solution. And it may have been web application firewall, it may have been DDoS protection or, in some cases, they may have been load balancing on distributed cloud, but then having landed on our platform, wanted to simplify their architecture and then adopted CDN as an additional module. We’ve seen service providers do that and we’ve seen enterprises do that across a number of verticals.
To the first part of your question around our software growth for the year, okay, it’s really about having a strong renewal performance on a renewal basis. So we have pretty good visibility on our renewals in the first quarter, frankly, and even most of last year. Even in a tough environment last year, renewals performed largely as we expected. So we continue to expect to see strong performance on our renewals and true forward and some expansion. And then in the new software subscription, our premise here is that the environment hasn’t changed too much from last year. We have a lot of predictability. But we are not expecting a lot of these large transformational projects to really be a big contributor to our new software subscriptions in the year.
Sebastien Naji: Got it. Thanks you, Francois.
Francois Locoh-Donou: Thank you.
Operator: There are no further questions at this time. This does conclude our conference today. You may disconnect your lines at this time. Thank you for your participation.
