Frank Pelzer
Executive Vice President & Chief Financial Officer at F5
Thank you, Francois, and good afternoon, everyone. I will review our Q1 results before I speak to our second quarter outlook and provide some additional color on our FY '23 expectations. We delivered first quarter revenue of $700 million reflecting 2% growth year-over-year. Global services revenue of $360 million grew a strong 5% in part due to the high maintenance renewals Francois mentioned and also reflecting previously announced price increases. Our revenue remained roughly split between global services and product with product revenue down slightly year-over-year reflecting softer demand across all geographies and representing 49% of total revenue in the quarter. Continued supply chain improvements enabled systems revenue of $173 million, down 4% year-over-year. Q1 software revenue grew 3% to $168 million against a tough comp last year.
Let's take a closer look at our overall 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 $129 million or 77% of Q1's total software revenue. Perpetual license sales of $38 million represented 23% of Q1 software revenue. Within our subscription business, as Francois noted, new multiyear subscriptions performed significantly below plan in Q1 while renewals performed largely as expected. Revenue from recurring sources contributed 68% of Q1's revenue. This includes revenue from term subscription, SaaS, and utility-based revenue as well as the maintenance portion of our services revenue. On a regional basis; revenue from Americas was flat year-over-year representing 57% of total revenue, EMEA grew 14% representing 26% of revenue, and APAC declined 7% representing 16% of revenue.
Enterprise customers represented 62% of product bookings in the quarter, service providers represented 21%, and government customers represented 17% including 6% from US Federal. I will now share our Q1 operating results. GAAP gross margin was 77.9%. Non-GAAP gross margin was 80.4%, in line with our guidance for the quarter and below where we expect to be for the year. GAAP operating expenses were $454 million. Non-GAAP operating expenses were $378 million, in line with our guided range. Our GAAP operating margin was 13%. Our non-GAAP operating margin was 26.5%. Our GAAP effective tax rate for the quarter was 24.5%. Our non-GAAP effective tax rate was 21.4%. GAAP net income for the quarter was $72 million or $1.20 per share. Non-GAAP net income was $149 million or $2.47 per share, above the top end of our guided range of $2.25 to $2.37 per share.
EPS was aided in part by currency gains related to a weaker US dollar in the quarter. I will now turn to cash flow and the balance sheet. We generated $158 million in cash flow from operations in Q1. Capital expenditures for the quarter were $13 million. DSO for the quarter was 62 days. This is up from historical levels, primarily due to strong service maintenance contract renewals in the quarter and to a lesser degree back-end shipping linearity resulting from ongoing supply chain challenges. Cash and investments totaled approximately $668 million at quarter-end reflecting the paydown of approximately $350 million in term debt remaining from our Shape acquisition. During the quarter, we repurchased approximately $40 million worth of F5 shares or approximately 263,000 shares at an average price of $152 per share. Deferred revenue increased 12% year-over-year to $1.76 billion, which is up from $1.69 billion in Q4.
This increase was largely driven by particularly strong service maintenance renewal sales reflecting the trend of customers sweating their existing infrastructure while recalibrating budgets. Finally, we ended the quarter with approximately 7,050 employees. I will now share our outlook for Q2. Unless otherwise stated, my guidance comments reference non-GAAP operating metrics. We expect Q2 revenue in the range of $690 million to $710 million with gross margins of approximately 80%. We continue to expect our gross margin will improve in the second half of the year for two main reasons. First, we expect some of the ancillary supply chain related cost like expedite fees will begin to abate. Second, with our engineering efforts to redesign around some of the more challenged components nearing completion, we expect to be less dependent on the broker market where cost for critical parts has been exorbitant.
We estimate Q2 operating expenses of $368 million to $380 million. And our Q2 non-GAAP earnings target is $2.36 to $2.48 per share. We expect Q2 share-based compensation expense of approximately $64 million to $66 million. Given our Q1 results and our Q2 expectations, I also want to elaborate on our FY '23 outlook. We continue to expect revenue growth of 9% to 11% for the year. Given the demand trends we have seen in the last four months, we expect our FY '23 revenue mix will reflect revenue contribution weighted more towards hardware and services and less towards software than we expected a quarter ago. Our FY '23 software growth is likely to be lower than the 15% to 20% we initially expected due to budget scrutiny and project delays pressuring new software contracts. This is offset by the probability of stronger systems growth given supply chain improvements and the benefit of our system redesign efforts coming to fruition.
In addition, based on the strong maintenance renewals we experienced in Q1 and forecast for Q2, we now expect Global Services growth of mid-single digits, which is up from low to mid single-digits growth we forecasted previously. As Francois noted, we continue to expect non-GAAP earnings growth in the low to mid-teens for FY '23. We remain committed to maintaining double-digit earnings growth this year and on an annual basis going forward. We will continue to evaluate our cost base and take further action as needed to achieve this goal.
I will now turn the call back over to Francois. Francois?
