Mike Berry
Chief Financial Officer at NetApp
Thank you, George. Good afternoon everyone, and thank you for joining us. Before we go through the financial details, I think it would be valuable to walk you through the key themes for today's discussion. Number one, as George highlighted, we delivered a strong Q2 in a dynamic environment, with all-time Q2 company highs for billings, revenue, gross profit dollars, operating income and EPS. Number two, we have adjusted our outlook for the second half of the fiscal year due to an increasingly challenging macroeconomic environment and unprecedented FX headwinds.
Number three, as we navigate through the current macro environment, we are laser focused on driving operating margins and free cash flow generation. As George noted, we have taken actions to reduce our full year expense envelope and will remain fluid in assessing further opportunities to take costs out of the business.
Number four, as a result of these cost savings measures, the entirety of the Op margin and EPS guidance revision for the full year is being driven by the incremental one to two points from the deepening currency costs we have seen, since our Q1 call; and number five, we continue to expect to generate greater than $1.4 billion in operating cash flow and $1.1 billion in free cash flow for the full year.
From a capital allocation perspective, we will continue to pause Cloud Operations acquisitions for the remainder of fiscal '23. We now plan to return more than 100% of fiscal '23 Free Cash Flow to investors through dividends and incremental share repurchases.
Now to the details. As a reminder, I'll be referring to non-GAAP numbers unless otherwise noted. Q2 billings were $1.6 billion, up 3% year-over-year. Revenue came in at $1.66 billion, up 6% year-over-year. Adjusting for the 540 basis point headwind from FX, billings and revenue would have been up 9% and 12% year-over-year, respectively. Even with the challenging Q2, our cloud portfolio continues to positively impact the overall growth profile of NetApp, delivering 3.5 of the 6 points in revenue growth.
Hybrid Cloud segment revenue of $1.52 billion was up 3% year-over-year. Product revenue of $837 million increased 3% year-over-year. Total Q2 recurring support revenue of $607 million increased 3% year-over-year, highlighting the health of our installed base. Public Cloud ARR exited Q2 at $603 million, up 55% year-over-year. Public Cloud revenue recognized in the quarter was $142 million, up 63% year-over-year and 8% sequentially. Recurring support and Public Cloud revenue of $749 million was up 11% year-over-year, or 16% in constant currency, constituting 45% of total revenue.
We ended Q2 with $4.1 billion in deferred revenue, an increase of 5% year-over-year, or 10% in constant currency. Q2 marks the 19th consecutive quarter of year-over-year deferred revenue growth, which is the best leading indicator for recurring revenue growth. Total gross margin was 66.3%, in line with our guidance. Total Hybrid Cloud gross margin was 66% in Q2, including a two-point year-over-year headwind from FX. Within our Hybrid Cloud segment, product gross margin was 50%, including a three-point year-over-year headwind from FX. Our growing recurring support business continues to be very profitable, with gross margin of 93%. Public Cloud gross margin of 68% was accretive to the corporate average for the eighth consecutive quarter. We remain confident in our long-term Public Cloud gross margin goal of 75% to 80%, as the business scales and an increasing percentage of our Public Cloud revenue is driven by cloud and software solutions.
Q2 highlighted the strong leverage in our business model, with operating margin of 24%, including two points of FX headwinds. EPS of $1.48 came in nicely ahead of guidance and included a $0.21 year-over-year FX headwind. Cash flow from operations was $214 million and free cash flow was $137 million. Q2 included our annual repatriation tax payment and continued cash outflows for certain inventory and premiums for constrained trailing edge analog parts. Additionally, collections were lower than expected due to a backend loaded quarter for invoicing linearity that you see in the higher accounts receivable balance.
Our component purchasing strategy allows us to meet as much customer demand as possible, but remains a clear headwind to cash flow and gross margins. We are seeing signs of relief in supply availability. The timing of a full supply recovery remains uncertain, however, as our inventory levels start to normalize, it will be a tailwind to free cash flow as we go through the second half of fiscal '23.
During Q2, we repurchased $150 million in stock and paid out $108 million in cash dividends. In total, we returned $258 million to shareholders, representing 188% of free cash flow. Share count of 220 million was down 4% year-over-year. We closed Q2 with $3 billion in cash and short-term investments.
Now to guidance. As George discussed, we have seen softening in the macro backdrop, with customers taking a decidedly cautious approach to spending. Additionally, currency headwinds have only continued to increase. We now expect fiscal '23 revenue to grow 2% to 4% year-over-year, which includes five points of FX headwind versus the four-point headwind assumed in our prior guidance. We now expect to exit fiscal '23 with Public Cloud ARR of approximately $700 million, which equates to our Public Cloud segment driving three points of total company revenue growth for the full year.
Three drivers are impacting the near-term growth rate of Cloud ARR. Number one, in this macro environment, we project continued optimization of storage services, as we help our customers manage their spending, which benefits Spot, but will offset some incremental near-term storage services ARR. Number two, we expect that project-based workloads will grow in both number and scale, but as they ramp, it will take some time to materialize into sizable ARR; and number three, we continue to tighten up the Cloud Insights sales motion, but we don't expect this meaningful cross-sell opportunity to materialize until we head into fiscal '24.
In fiscal '23, we continue to expect gross margin to range between 66% and 67%, as elevated component costs and FX headwinds weigh on product margins. As you know, the vast majority of our bill of materials is procured in U.S. dollars. We are optimistic that supply constraints will ease further in the second half of our fiscal year, reducing our dependence on procuring cost at significant premiums. We should also see a benefit from declining NAND prices in Q4. While the timing is uncertain, we remain confident that our structural product margins will normalize back to the mid-50s in the fullness of time.
For the full year, we expect operating margin of approximately 23%, which now includes approximately two points of FX headwind and EPS of USD5.30 to USD5.50, which now includes more than $0.70 of currency impacts. It's important to reiterate that we are offsetting the full year revenue adjustment with an extremely disciplined approach to our spending envelope. As a result, the entirety of the Op margin and EPS guidance revision for the full year is being driven by the incremental one to two points from the deepening currency costs we have seen since our Q1 call.
We continue to expect to generate greater than $1.4 billion in operating cash flow and $1.1 billion in free cash flow for the full year. From a capital allocation perspective, we will continue to pause cloud operations acquisitions for the remainder of Fiscal 2023, as we sharpen our portfolio focus by refining the Cloud Insight value proposition and sales motion, accelerating the integration of Spot and CloudCheckr into a single FinOps suite, and driving the successful integration of Instaclustr. As I said earlier, we now plan to return more than 100% of fiscal 2023 free cash flow to investors through dividends and incremental share repurchases.
Now on to Q3 guidance. We expect Q3 net revenues to range between USD1.525 billion and USD1.675 billion, which at the midpoint implies a 1% decrease year-over-year, or 4% growth in constant currency. We expect consolidated gross margin to be approximately 67% and operating margin to range between 22% and 23%. We anticipate our tax rate to be between 21% to 22%. And we expect earnings per share for Q3 to range between USD1.25 and USD1.35 per share. Assumed in our Q3 guidance is net interest income of $5 million and a share count of approximately 220 million.
In closing, I want to thank the entire NetApp team for their continued commitment in such a dynamic environment. I'll now hand it back to Kris to open the call for Q&A. Kris?