Charles H. Robbins
Chairman and Chief Executive Officer at Cisco Systems
Thanks, Marilyn. And hope everyone is doing well. With the tremendous results we delivered in the first-half of the year, fiscal '23 is shaping up to be very strong, fueled by demand for our cloud-driven networking portfolio, our continued business transformation success and an improving supply situation. Thanks in large part to our teams aggressive actions.
Before I dive into additional details on the quarter, I wanted to take a moment to say how incredibly proud I am of the team here at Cisco. While the environment we're operating in remains dynamic, Cisco is better-positioned today than at any time since I became CEO almost eight years ago. We have reshaped and transformed the company and our portfolio, while remaining highly disciplined both financially and operationally. This gives me great confidence that we will continue to succeed in the long-term.
Now, I will touch on the quarter in more detail. Our Q2 financial results were strong as we again exceeded the high-end of our guidance ranges. We delivered our second-highest quarterly revenue of $13.6 billion, up 7% and record non-GAAP EPS at $0.88. We also delivered solid ARR growth, sequential non-GAAP margin expansion and record non-GAAP net income.
In terms of our business model shift, we continue to make great progress, with 10% growth in software revenue, and with software subscription revenue up 15%. Recurring revenue also now represents 44% of our total revenue. In addition, we have built-up nearly 32 billion in remaining performance obligations and our backlog remains robust. Even as we drew down backlog by 6% sequentially, our total backlog still grew year-over-year. These metrics, along with our increasing visibility, led us to raise our full-year outlook, which Scott will address in a moment. This quarter, we also achieved record operating cash flow, enabling today's dividend increase, and the buyback over 1 billion. We continue to deliver on our commitment to drive returns to our shareholders.
Let me also provide an update on the supply situation. While components for a few product areas remain highly constrained, we did see an overall improvement. Combined with the aggressive actions our supply-chain and engineering teams took to redesign hundreds of our products, we increased product deliveries and saw significant reductions in customer lead times. As our product deliveries increased, channel inventories also declined as our partners were able to complete customer projects. Like I shared last quarter, as supply constraints ease and lead times shorten, we expect orders would normalize from previously elevated levels as customers return to more typical buying patterns. As a result, sequential quarterly order growth is a better indicator than year-over-year growth. And in Q2, despite improving lead times, our quarter-over quarter order growth was again in-line with our historical ranges across most of our geographies and customer markets.
With that, let me touch on what we're seeing with customer demand. In our customer markets, we experienced normal double-digit sequential growth in both our enterprise and commercial markets, while public sector performed better than we've seen historically. Within our service provider business, our order rate was below recent sequentials as some customers are absorbing the improved delivery of our products into their production environments. We saw another consecutive quarter of rapid adoption of our 400 Gig Cisco 8000 and Silicon One platforms. This reflects the ongoing investments our customers are making in our innovative solutions and AI optimized infrastructure.
Within webscale, while we saw overall slowing due to normalizing product lead times, two of our largest customers grew their orders with us over 40% in the first-half of fiscal '23. We continue to take share in this space. And over the past few years, we've grown our webscale cloud infrastructure from effectively zero into a multi-billion dollar run-rate business. I'm incredibly pleased about the overall progress we've made as we are continuing to win more and more use cases within their infrastructure. We are also still at the beginning of what we believe to be a massive growth opportunity going forward. While we continue to closely monitor the global macroeconomic conditions, the overall demand environment remains steady and on par with Q1 and our pipeline and win rates remain stable.
Looking at the broader landscape, digital transformation and hybrid cloud remain top areas of spend, which is fueling growth across our portfolio. Many customers have told me that while their spend levels may be slowing in some areas, technology remains essential as it is vital to their overall business resilience, competitive differentiation and success. In fact, Gartner and IDC's most recent surveys, make it clear that technology budgets are growing as they forecast IT spend to increase in the mid to high single-digits in 2023. We are also seeing many customers moving ahead with their hybrid work, AI and ML investments, while building the modern infrastructure they need to deliver on their objectives. IoT has also been accelerating. We saw record revenue growth in Q2 as customers look to connect their Industrial Systems in order to optimize power consumption, automation and efficiency.
Lastly, cyber security and full stack observability remains strategic priorities, where we continue to invest and innovate. From a product revenue perspective, we saw strong double-digit growth for Catalyst 9000, Enterprise Routing, Wireless, Meraki, Duo and ThousandEyes, reflecting the ongoing investments our customers are making to modernize their infrastructure to rapidly digitize and secure their organizations. We are increasing our investments in our cloud management platforms that deliver the simplicity our customers need. You will see us continue to bring AI and ML into those platforms to further simplify how networks are managed. For example, in Q2, we announced several new innovations across our cloud managed networking and security portfolios that offer greater visibility with AI driven insights, enable secure connectivity and give our customers the ability to simplify their IT operations.
Last week, we introduced a preview of our cloud-native full stack observability platform. The first network visibility solution to support open telemetry. This platform brings together our ThousandEyes and AppDynamics capabilities for unmatched data correlation and insights from the user to the application to the network. To simplify network security and policy management, our unified SASE solution, Cisco Plus Secure Connect, now supports integration into Cisco SD-WAN fabrics, using Viptela technology, as well as our existing Meraki SD-WAN fabric. We also introduced new flexible more powerful and energy-efficient servers, which not only help lower-cost, but also help our customers meet their sustainability goals, an increasingly critical area for most of our customers.
To close, I'm proud of what we achieved this quarter. We delivered a strong financial performance, innovated across our portfolio, and continue to make great progress on our business transformation. In addition, the increased visibility we have from almost 32 billion in RPO, a healthy backlog and pipeline, and improving supply, give us the confidence to raise our full-year outlook. We expect those same factors to continue into fiscal year '24, giving us conviction in our ability to deliver on our commitments. The modern resilient and secure networks we are building serve as the backbone of our customers' technology strategy. Cisco is well-positioned to benefit from multiyear investment cycles, with our market-leading hardware, as well as our innovative software and services. Together, these allow our customers to digitize rapidly, secure their environments, and achieve their sustainability goals, all while delivering differentiated experiences.
Now, I'll turn it over to Scott.