Frank Pelzer
Executive Vice President and Chief Financial Officer at F5
Thank you, Francois, and good afternoon, everyone. I will review our Q4 results before moving on to briefly recap FY '22 results. I will then speak to our FY '23 and first-quarter outlook. We delivered fourth-quarter revenue of $700 million, reflecting 3% growth year-over-year with 3% product revenue growth and 2% global services growth. Product revenue represented 50% of total revenue in the quarter and was split 49% software, 51% systems. Q4 software revenue grew 13% to $172 million, systems revenue of $178 million was down 5% year-over-year. Rounding out our revenue picture, global service delivered $350 million in revenue.
Let's take a closer look at our software growth. Our software revenue is comprised of subscription-based and perpetual license sales. Subscription-based revenue, which includes term subscriptions, our SaaS offerings and utility-based revenue totaled $131 million or 76% of Q4's total software revenue, the remaining 24% or $41 million came from perpetual license sales. Let's talk first about subscriptions and their performance in the quarter, multiyear subscription renewals and our SaaS solutions performed as expected.
However, as Francois noted, as the quarter progressed, we began to see increased budget scrutiny from customers and elongating selling cycles, particularly related to new projects and new architectural rollouts. While we had a strong pipeline of new multiyear subscriptions headed into the quarter, these dynamics led to lower close rates on new deals. We believe budget pressures also led to a strong mix of perpetual software sales in Q4 with an increasing number of customers performing capex-based consumption models. Revenue from recurring sources, which includes term subscriptions, SaaS and utility-based revenue as well as the maintenance portion of our services revenue totaled 67% of revenue in Q4.
On a regional basis, Americas delivered 6% revenue growth year-over-year, representing 61% of total revenue. EMEA declined 3%, representing 23% of revenue, and APAC declined 2%, representing 17% of revenue. Enterprise customers represented 66% of product bookings in the quarter. Service providers represented 13% and government customers represented 21%, including 12% from U.S. Federal. I will now share our Q4 operating results.
GAAP margin was 78.9%. Non-GAAP gross margin was 81.4%. This was below our guidance of 82% to 83% as a result of the higher systems revenue mix in the quarter and higher costs associated with procuring and expediting critical components in the broker market. GAAP operating expense was $445 million. Non-GAAP operating expense was $379 million, in line with our guided range. Our GAAP operating margin was 15.4%. Our non-GAAP operating margin was 27.3%. Our GAAP effective tax rate for the quarter was 10.4%. Our non-GAAP effective tax rate was 14.1%. GAAP net income for the quarter was $89 income or $1.49 per share. Non-GAAP net income was $158 million or $2.62 per share.
I will now turn to cash flow and balance sheet. We generated $154 million in cash flow from operations in Q4. Capital expenditures for the quarter were $9 million. DSO for the quarter was 60 days. Similar to last quarter, this is up from historical levels due to the back-end shipping linearity in the quarter resulting from ongoing supply chain challenges.
Cash and investments totaled approximately $894 million at quarter end. Deferred revenue increased 14% year-over-year to $1.69 billion, up from $1.64 billion in Q3. This increase was largely driven by subscriptions and SaaS bookings growth and, to a lesser extent, deferred service maintenance. Finally, we ended the quarter with approximately 7,090 employees.
I will now briefly recap our FY '22 results. For the year, revenue grew 3% to $2.7 billion. Product revenue of $1.3 billion grew 6% from the prior year and accounted for 49% of total revenue. As Francois noted, we achieved a significant milestone in the year, with software representing 51% of product revenue. Software revenue grew 33% to $665 million for the year, while systems revenue declined 13% to $652 million. Global services grew 2% to $1.4 billion. FY '22 software growth came from both subscriptions and perpetual license growth.
Since FY '19, we have driven total software revenue growth at a 41% compounded annual growth rate, subscription software at a 58% compounded annual growth rate and perpetual license at a 10% annual growth rate. In FY '22, revenue from term-based subscription models, including renewals and inter-term expansions or true forwards continue to represent the majority of our software subscription revenue.
With the launch of F5 distributed cloud services in February, we have introduced a new growth vector for our software business with a SaaS-based consumption model. We are thrilled with the early customer traction for the platform, but scaling ratable SaaS revenue takes time. We are transitioning all of our previously available SaaS services, including solutions from Shape and Silverline Managed Services to F5 distributed cloud services, creating a unified delivery platform for customers. We fully expect F5 distributed cloud will be a meaningful contributor to our revenue in the future.
We will look to disclose both its revenue contribution and other relevant ratable revenue metrics as the business grows and matures. Our software revenue growth is driving us towards a higher recurring revenue base. In FY '22, 69% of our revenue was recurring, up from 66% in FY '21 and reflecting an 11% compound annual growth rate since FY '19. We closed FY '22 with approximately $231 million in product backlog, the vast majority of which is system space. This is up more than 80% from approximately $125 million in product backlog in FY '21. While backlog orders are cancelable, we continue to see very low to nonexistent cancellation rates.
Two years ago, we began disclosing the portion of our revenue derived from security solutions. Francois mentioned, we delivered $1 billion in security revenue in FY '22, representing 37% of total revenue. We estimate our stand-alone security product revenue, which includes solutions sold exclusively for security use cases in either software SaaS or hardware deployment models, grew to approximately $440 million. This reflects a 30% compounded annual growth rate since FY '19.
I will now turn to our FY '22 operating performance. GAAP gross margin in FY '22 was 80%. Non-GAAP gross margin was 82.6%. Our GAAP operating margin in FY '22 was 15% and our non-GAAP operating margin was 28.9%. Our GAAP effective tax rate for the year was 16.4%. Our non-GAAP effective tax rate for the year was 18.1%. Our FY '22 annual tax rate was lower than expected primarily due to a discrete benefit from filing our fiscal year 2021 state income tax returns. GAAP net income for FY '22 was $322 million or $5.27 per share. Non-GAAP net income was $623 million or $10.19 per share.
I will now share our outlook for FY '23. Unless otherwise stated, my guidance comments reference non-GAAP operating metrics. As Francois noted, we expect to deliver 9% to 11% revenue growth in FY '23. This view incorporates a balance between tailwinds to our systems business from gradually improving component availability during the year and macroeconomic headwinds. It also factors in current customer caution. In FY '23, we expect the dynamics around budget scrutiny and caution around new projects will be similar to what we experienced in Q4. As a result, we expect software growth of 15% to 20% for the year.
We expect systems revenue growth in FY '23 with growth weighted towards the second half when supply chain risk related to critical components begins to abate. Finally, we expect low to mid-single-digit revenue growth from our global services. Shifting to our operating model, we expect supply chain pressures to remain acute in the first half of the year and to gradually improve in the second half. This dynamic will impact our FY '23 operating model trends likely outweighing our usual seasonality.
Specifically, revenue, gross margin and operating margin expansion are expected to be more weighted in Q3 and Q4 of FY '23. We expect FY '23 gross margins of approximately 81% with the combination of moderating supply chain cost and price realization from our previously announced price increases flowing through as we progress through the year. We expect continued operating expense discipline will result in non-GAAP operating margin in the range of 30% to 31% for the year. We expect our FY '23 effective tax rate will be 21% to 23%. And we expect to deliver non-GAAP EPS growth in the low to mid-teens for the year.
As Francois noted, with results in these ranges, we would achieve our Rule of 40 target for FY '23. We are committed to maintaining it and double-digit earnings growth going forward on an annual basis. Our FY '23 outlook incorporates the expectation that we will allocate 50% of our free cash flow for the year to share repurchases, consistent with our balanced approach and the commitment we made at our last Analyst Day. Included in this expectation is that we pay down the $350 million remaining on our term loan related to the Shape acquisition when it matures in January of 2023.
I will now speak to our outlook for Q1 FY '23. We expect Q1 revenue in the range of $690 million to $710 million with gross margin of approximately 80%. We estimate Q1 operating expenses of $370 million to $382 million. And our Q1 non-GAAP earnings target is $2.25 to $2.37 per share. We expect Q1 share-based compensation expense of approximately $61 million to $63 million.
I will now turn the call back over to Francois. Francois?