AI workloads are going to be modern applications, some of which may run on-prem but we think a, a lot of them will run in software environment, and so it’s likely that supporting AI workloads will accrue more to our software business over time. And in addition to that, we think we have a very unique position in that with our distributed cloud capabilities, we are able to run inferences really in any cloud environment and beyond. So we can run inferences in any public cloud, we can run it at the edge, we can run it in our own cloud. And increasingly, we’re hearing from customers that they will want to run these inferences on manufacturing floors or on the retail branches for retail customers or and vehicles for some far as use cases. And we have the ability to run and secure and deliver these inferences in any environment.
You know, whether it’s in the cloud or in any one of these far edge environments and that makes F5 very unique in its position for running AI inferences in the future. All of that of course will accrue to our software business.
Samik Chatterjee: Go it, got it. A quick follow-up Francois, you mentioned the green shoots you’re seeing in terms of enterprises spending and the recovery there. I think one of the pushbacks we’ve seen from investors on that front has largely been the expectation that there might be a pickup here in the back end of the year just from a budget flush perspective from the enterprises, and you might sort of see a pull back again, as we enter into next year and more sort of budget cuts. Any insight you know, that you’re already getting from your customers about how budgets look for next year or in relation to whether would this sort of pickup, if anything to do with the more temporary flush of budgets before the year end? Thank you.
Francois Locoh-Donou: Yes. Thank you, Samik. I, I don’t think it, it was related to a budget flush for — you know because, you know, the comments we made in resumption were really things we observe in the, the quarter that ended in, in September for us. When we look at next year, no, we do not have visibility into exactly what budgets our customers will have in FY ‘24. We do have a strong pipeline, entering the fiscal year on hardware. And you know that would — it will come down to what are the close rates on that. In Q4 the close rates that we saw on our pipeline entering the quarter were better than in the prior three quarters of the year. That’s also part of why we talked about stabilization. And green shoots in Q4 is because what we saw in the close rate.
So we’re going into the fiscal year with a stronger hardware pipeline. Recent data points on close rates that are positive. But of course, we are cautious, because there’s still a lot of uncertainty out there. Around the macro as you noted. We continue to see customers you know in certain occasions, delaying, delaying deals or having continued budget scrutiny and more approvals. We are seeing that phenomenon continue. And so overall, we’re still cautious going into the year.
Samik Chatterjee: Yes. Thank you. Thanks for taking my questions.
Operator: Our next question comes from the line of Meta Marshall with Morgan Stanley. Please proceed with your question.
Meta Marshall: Great, thanks. Maybe building on Samik’s question to start. You know, as you look at your pipeline, is your view that a lot of this is, okay, we’ve sweated assets as much as we can, or the utilization of the appliances is too high or you know, are we starting to see kind of growth in multi-cloud projects again? Just trying to get a sense of as you look at your pipeline, is it kind of traditional applications are expanding our use cases? And then maybe as a second question, You know, you mentioned kind of having plays as AI and inference cases grow, you know, is that going to require productization of any kind of suites of products today or just kind of tailoring to kind of have AI ready solution? Thanks.
Francois Locoh-Donou: Thank you, Meta. The — so let me start with the first question, and my comments on pipeline. There are more related to what we’re seeing in the — on the hardware side of things, where we had a number of customers that A, number one have been sweating their assets, and they’re getting sometimes the utilization levels, where we, we know that at some point in ‘24 they will have to do something. Or number two, customers who have placed orders in FY ‘22 have not been able to receive equipment for these orders, who now have and have started to deploy that capacity and are starting to be ready to order again. So that is accruing to a stronger hardware pipeline. In terms of big you know, kind of multi-cloud software, what we’ve called this transformational software project, we are not yet seeing a you know substantial resumption of these kinds of projects.
But then that’s what I was saying earlier is customers are still very cautious on undertaking, you know, big projects like that. And we’re not seeing a different pattern going into the year on those aspects. As it relates to AI and whether it will require productization, we have essentially and so on, on the aspect of being able to run inferences in any environment, we have these capabilities in Distributed Cloud. I think we need to ensure that we harden these capabilities and there is a strong go-to-market effort to be made around that to make customers aware of that in the future as they start deploying AI workloads. As it relates to being able to secure and deliver AI workloads, those capabilities exist today and we are ready to go with that already.
Frank Pelzer: Meta, I just wanted to add that, you know, last year we talked about in our outlook, particularly, in software that, we were a little less than 50% of our outlook at the time was coming from the renewals and the trueforwards portion of our term subscription agreements, and that’s and our SaaS based revenue. And that’s a little more than half was going to come from new, this year as we take a look at that same formula and we look out over 60% of you know what we expect in that flat to modest software growth is coming from, both the renewables pieces of the SaaS and managed service business, plus the renewables true forwards of our term subscription business. So we tried to take into account the fact that we don’t see these transformational projects on the horizon as we thought about the guidance.
Meta Marshall: Great. Thank you.
Operator: Our next question comes from the line of Michael Ng with Goldman Sachs. Please proceed with your question.
Michael Ng: Hey, good afternoon. Thank you for the question and for all the comments on, on the outlook. I just had two, both on software. You know, first, I was just wondering if you could talk a little bit about, you know, your visibility into the term business. You know, you called out term as something that would help drive the double-digit software revenue growth in fiscal ‘25, as well as potential growth in fiscal ‘24. And then second, I was just wondering if you could talk a little bit more about this migration from Silverline to DCS. It sounds like it’s a multi-year headwind, you know, something that contributed to the weakness in ARR in fiscal ‘23, but it also seems to be a headwind in fiscal ‘24 and fiscal, fiscal ‘25. So maybe you could just talk about that and you know, how that transition is rolling off and you know, over how many years. Thank you.
Frank Pelzer: Sure, Michael. Let me start with the first question and then I’ll let Francois jump in on the second on the Silverline side. So on the, first on the term subscription, particularly the, you know, the trueforwards and the expansions that we have seen, with the second terms coming on and we’ve had probably about seven or eight quarters now of run rate, and are getting much more comfortable with the early signs that you know, where massive expansions continue. And so getting very, very strong utilization from the — from that base of deployed, flexible consumption programs, and this specifically covers right now BIG-IP and the NGINX portfolio within our business, as I mentioned in the prepared remarks. And that’s giving us a lot of comfort, both in FY ‘24 and more importantly, in FY ‘25.
