Ken Miller: Yeah. So I’ll address the seasonal pattern one. We do expect the double-digit decline Q4 to Q1 as we mentioned. And then from there, we expect sequential growth throughout the rest of the quarter. I would say we’ve talked a lot about revenue next year was uncertain predominantly because it’s just unclear about the pace and timing — the size and timing of the recovery within Cloud and SP. So that implies to me that we expect it to recover at some point next year but just not exactly sure when. And when that does, that should accelerate revenue. So I would expect revenue to be maybe a bit more back-end loaded, probably closest traditional patterns this last year 2023 or this year. 2023 was not kind of a sequential growth quarter. It was kind of a flattish quarter from a quarter-to-quarter perspective throughout the year. Next year, I think we’ll start down and it will build back up as the year progresses.
David Vogt: And then on the backlog because it sounds like it’s going to be normal after the end of the second quarter. So that sounds like it would be a pretty healthy tailwind despite sort of the commentary for sequential pressure in the first quarter. So I just wanted to clarify that.
Ken Miller: Yes. So backlog continues to be a bit of a tailwind in each of our quarters, but it’s lessening quarter after quarter as it starts to normalize. So not giving any specific guidance other than I do expect it to remain elevated as we exit the year but not to the degree that we previously thought. We were thinking it was going to be two times previous kind of historical levels. We now think it will be less than that but still be above historical levels.
David Vogt: Okay. Thanks guys.
Operator: Thank you. The next question is coming from George Notter from Jefferies. George, your line is live.
George Notter: Hi guys. Thanks very much. I guess I wanted to dig in on gross margin a bit more. Could you walk us through some of the puts and takes on gross margin? I guess I’m thinking more about some of the impacts on the supply chain crunch. It sounds like — I imagine there’s certainly high-cost componentry that’s running through the gross margin line right now. Also, it sounds like there’s some breakdown associated with excess and obsolete inventory here as well. I guess, can you give us a sense for how big those components are in terms of their impact on gross margin?
Ken Miller: Yeah. So I mean we are seeing — we’re definitely seeing some improvements in what we used to refer to as the transitory costs, right? These were predominantly logistics costs and expedite fees or purchase price variance fees, where we’re paying more just to get a hold of the product that was scarce, hard to get. We clearly are not paying any more of those fees as we are able to get products pretty much on time with standard lead times at this point. The supply chain has completely normalized from a lead time perspective. But we do still have some inventory that we bought at prior higher prices, as you mentioned, and that’s going to bleed through over the next few quarters. But each quarter, we’re getting more and more of that benefit or less and less of those additional fees on the expedite side.
Logistics has effectively recovered completely, right, where the logistics cost that we were paying — the elevated logistics costs have completely normalized. And that’s obviously benefiting our current gross margin results and our expectations going forward. The one area that has gone negative, if you will, or have gotten worse over the last 12 months are those inventory carrying fees that I mentioned. And that’s really just a factor of the balance sheet and inventory that we’re carrying. So I would expect those costs to remain for the next few quarters higher-than-normal levels as inventory remains higher-than-normal levels, but I do see a path to recovery on those as well. All this is factored into our guidance, obviously, for Q4 as well as our expectation that next year, we expect to grow gross margin.
George Notter: Got it. Okay. That helps. And then also back to the services gross margin strength this quarter, I guess, I’m just curious for more detail on what drove that strength. It sounds like it was probably the SaaS business. But that services gross margin really did step function up in Q3. I guess I’m wondering exactly if that was the driver or there’s other things at work there. Thanks.
Ken Miller: Yeah. The revenue — SaaS was definitely a part of it and has been a continual part of it for the last few years as SaaS is becoming a bigger part of our overall business. we disclosed on the call, our ARR business at $357 million at an all-time high and growing quite nicely. So that is becoming a bigger factor of overall services. However, I don’t want to discount the maintenance business, which also grew nicely in the quarter and the efficiencies we’re getting within our services organization. So really, this is a situation of revenue growth and cost of revenue decline, and that’s resulting in the margin expansion that you’re seeing.
George Notter: Got it. One last one. Is it fair to say there’s no one-time items driving that gross margin this quarter that’s related baseline that you should continue to kind of move off of going forward? Is that fair to say?
Ken Miller: I think it’s fair to say that directionally, we should be moving up as we move forward. Any given quarter, you might see some small anomalies, but I do feel good about the ability to continue to grow gross margin in a more of an aggregate time period basis.
George Notter: Great. Thank you.
Operator: Thank you. The next question is coming from James Fish from Piper Sandler. James, your line is live.
James Fish: Hey guys. Kind of working back on Simon’s question before on Mist. It’s been a huge behemoth. We constantly hear the need to upgrade wireless LAN due to specifically going back to work, actually, and all of us having Zoom and Teams meetings still actually in the office with those that are not in the office. Those apps obviously are showing bandwidth improvements. And we’ve been seeing the strength in wireless LAN for a while now. And really the core of this, Rami, is how much more is left in this business from a — let’s separate the market perspective, as Simon pointed out, like the decline potentially for next year versus the outright share gains. What do you see left in the pipeline and opportunity? And Ken, just for you, I mean, just round out this discussion, prior to the supply chain glut and as you guys matured, it looked like you averaged about 12% to 14% declines in Q1.
And Q1s have been about 22% to 23% of your year. That kind of backs me into about a 2% decline for next year. And I know you’re not going to less that number necessarily, but you’re talking about orders growing, as you said. So I guess, what kind of order of magnitude are you looking for, for growth? And are you thinking of it as low single-digit decline for next year is the way we should be modeling? Thanks guys.
Rami Rahim: Okay. Let me start with your first question. And Ken, I’ll let you talk a little bit more about the commentary for next year. So I’ll address the Mist question from both the standpoint and sort of market dynamics and then what’s happening with our business more specifically. From a market dynamic standpoint, I think it’s really important to understand that the — if you look at the campus and branch market all up, that’s sort of a slow, maybe flattish-type market opportunity. Within the campus and branch market, there’s actually a segment really ran cloud-managed. These are basically enterprise solutions where the control and the management of that solution is really done through the cloud. And that part of the market is actually growing at a healthy clip, and I expect that it will continue to grow through next year as well.
