Chantelle Breithaupt
Chief Financial Officer at Arista Networks
Thank you, Jayshree, and good afternoon. The analysis of our Q1 results and our guidance for Q2 2024 is based on non-GAAP and excludes all noncash stock-based compensation impacts, certain acquisition-related charges and other nonrecurring items. A full reconciliation of our selected GAAP to non-GAAP results is provided in our earnings release. Total revenues in Q1 were $1.571 billion, up 16.3% year-over-year and above the upper end of our guidance of $1.52 billion to $1.56 billion. This year-over-year growth was led by strength in the enterprise vertical with cloud doing well as expected. Services and subscription software contributed approximately 16.9% of revenue in the first quarter, down slightly from 17% in Q4. International revenues for the quarter came in at $316 million or 20.1% of total revenue, down from 22.3% in the last quarter.
This quarter-over-quarter reduction reflects the quarterly volatility and includes the impact of an unusually high contribution from our EMEA in-region customers in the prior quarter. In addition, we continue to see strong revenue growth in the U.S. with solid contributions from our Cloud Titan and Enterprise customers. Gross margin in Q1 was 64.2%, above our guidance of approximately 62%. This is down from 65.4% last quarter and up from 60.3% in Q1 FY '23. The year-over-year margin accretion was driven by three key factors: Supply chain productivity gains led by the efforts of John McCool, Mike Capes and his operational team, a stronger mix of Enterprise business and a favorable revenue mix between product, services and software.
Operating expenses for the quarter were $265 million or 16.9% of revenue, up from last quarter at $262.7 million. R&D spending came in at $164.6 million or 10.5% of revenue, down slightly from $165 million last quarter. This reflected increased head count offset by lower new product introduction costs in the period due to timing of prototypes and other costs associated with our next-generation products. Sales and marketing expense was $83.7 million or 5.3% of revenue, compared to $83.4 million last quarter, with increased head count costs offset by discretionary spending that is delayed until later this year. Our G&A costs came in at $16.7 million or 1.1% of revenue, up from 0.9% of revenue in the prior quarter. Income from operations for the quarter was $744 million or 47.4% of revenue.
Other income for the quarter was $62.6 million, and our effective tax rate was 20.9%. This resulted in net income for the quarter of $637.7 million or 40.6% of revenue. Our diluted share number was 319.9 million shares, resulting in a diluted earnings per share number for the quarter of $1.99, up 39% from the prior year. Now turning to the balance sheet. Cash, cash equivalents and investments ended the quarter at approximately $5.45 billion. During the quarter, we repurchased $62.7 million of our common stock. And in April, we repurchased an additional 82 million for a total of $144.7 million at an average price of $269.80 per share. We have now completed share repurchases under our existing $1 billion Board authorization, whereby we repurchased 8.5 million shares at an average price of $117.20 per share.
In May 2024, our Board of Directors authorized a new $1.2 billion stock repurchase program, which commences in May 2024 and expires in May 2027. The actual timing and amount of future repurchases will be dependent upon market and business conditions, stock price and other factors. Now turning to operating cash performance for the first quarter. We generated approximately $513.8 million of cash from operations in the period, reflecting strong earnings performance, partially offset by ongoing investments in working capital. DSLs Came in at 62 days, up from 61 days in Q4 driven by significant end of quarter service renewals. Inventory turns were 1, flat to last quarter. Inventory increased slightly to $2 billion in the quarter, up from $1.9 billion in the prior period, reflecting the receipt of components from our purchase commitments and an increase in switch-related finished goods.
Our purchase commitments at the end of the quarter were $1.5 billion, down from $1.6 billion at the end of Q4. We expect this number to level off as lead times continue to improve but will remain somewhat volatile as we ramp up new product introductions. Our total deferred revenue balance was $1.663 billion, up from $1.506 billion in Q4 of fiscal year 2023. The majority of the deferred revenue balance is services related and directly linked to the timing and term of service contracts, which can vary on a quarter-by-quarter basis. Our product deferred revenue balance decreased by approximately $25 million versus last quarter. We expect 2024 to be a year of significant new product introductions, new customers and expanded use cases. These trends may result in increased customer-specific acceptance clauses and increase the volatility of our product deferred revenue balances.
As mentioned in prior quarters, the deferred balance can move significantly on a quarterly basis independent of underlying business drivers. Accounts payable days were 36 days, down from an unusually high 75 days in Q4, reflecting the timing of inventory receipts and payments. Capital expenditures for the quarter were $9.4 million. Now turning to our outlook for the second quarter and beyond. I have now had a quarter working with Jayshree, the leadership team and the broader Arista ecosystem, and I am excited about both our current and long-term opportunities in the markets that we serve. The passion for innovation, our agile business operating model and employee commitment to our customers' success are foundational. We are pleased with the momentum being demonstrated across the segments, Enterprise, Cloud and Providers.
With this, we are raising our revenue guidance to an outlook of 12% to 14% growth for fiscal year 2024. On the gross margin front, given the expected end customer mix combined with continued operational improvements, we remain with the fiscal year 2024 outlook of 62% to 64%. Now turning to spending and investments. We continue to monitor both the overall macro environment and overall market opportunities. which will inform our investment prioritization as we move through the year. This will include a focus on targeted hires and leadership roles, R&D and the go-to-market team as we see opportunities to acquire strong talent.
On the cash front, while we will continue to focus on supply chain and working capital optimization, we expect some continued growth in inventory on a quarter-by-quarter basis, as we receive components from our purchase commitments. With these sets of conditions and expectations, our guidance for the second quarter, which is based on non-GAAP results and excludes any noncash stock-based compensation impacts and other nonrecurring items is as follows: revenues of approximately $1.62 billion to $1.65 billion, gross margin of approximately 64% and operating margin at approximately 44%. Our effective tax rate is expected to be approximately 21.5% with diluted shares of approximately 320.5 million shares.
I will now turn the call back to Liz for Q&A. Liz?
